If you are considering an IVA we investigate how long you will have to pay before you are debt free and what factors might affect the time that the arrangement will last.

Individual voluntary arrangements (IVA) normally last for five years. At the end of this time, whatever unsecured debt has not been paid is written off by your creditors leaving you free of this debt.

However the five year IVA repayment period is not part of the legal requirement of an IVA. It is simply a standard that has become widely accepted by the majority of creditors.

This means that it is possible that the payments into an IVA will last for longer than five years or indeed for less than five years.

Some of the common reasons why an IVA might last longer than five years are listed below:

Unable to release property equity at end of IVA

If you are a home owner, you will almost certainly have to agree to revaluing your property in the fifth year of your IVA. If you have equity in the property at that time then you will be required to try and release as much as possible for the benefit of your creditors.

Even though you agree to releasing equity, it is possible that you will not be able to do so because you are unable to secure the necessary mortgage offer. This situation has become more and more likely since the onset of the credit crunch in 2008.

As an alternative to equity release if you cannot get a mortgage, your creditors will normally accept that you will extend the time your IVA lasts for one extra year.

This means that you make twelve extra payments and then your IVA will be completed with no further obligation to try and release equity from your home.

Reduced payments during your IVA
 
If your financial circumstances get worse while you are in an IVA, you may find that you are unable to continue paying your agreed monthly IVA payments.

As a result and depending on the nature of the circumstances, your creditors may agree to reduce the payments you have to make each month to ensure that your IVA does not fail.

However in return, your creditors may well request that the number of months that you pay your IVA is extended to compensate for the reduced payments that you are making.

In this way, your creditors will receive the same return overall as if your payments had stayed at the same level.

Creditors insist on a longer IVA

It is unusual but possible that before they are willing to accept your IVA proposal, a creditor will insist that the standard five year IVA period is extended to six or even seven years.

This is generally the case if the original period that you agreed to repay that particular debt over was much longer than five years.

A good example of this is unsecured Northern Rock (NRAM) debts which have resulted from a home repossession.

NRAM’s argument is that you originally agreed to repay the loan over 10 or even 20 years. As such it is reasonable for them to insist on an increase to the length of your IVA to boast the amount that you pay back. The extended period is often two years creating a seven year IVA.

Although creditors can insist on an extended IVA payment term, it is not normally possible for you to request that your IVA should last for longer than five years to compensate for the fact that that the payments you can afford to make each month are relatively low.

Can an IVA last less than 5 years?

The answer to this question is yes. Individual voluntary arrangements quite often last for less than five years.

If you start a standard five year IVA debt solution, it is possible to settle the agreement early at any time.

Early settlement will be possible if you receive a large windfall which allows you to repay your debt in full immediately. Of course this will mean that your IVA will end.

Alternatively a third party may be prepared to offer a lump sum to your creditors to settle your IVA early. This is common where a friend or family member is prepared to help raise the funds required.

In addition to settling your IVA after it has started, it is equally possible to carry out a one off payment full and final settlement IVA which begins and ends in a single month. This scenario is most common where a lump sum can be made available initially but you are then not able to make any further monthly payments from your income.

Considering an IVA?

If you are thinking about starting an IVA, a good rule of thumb to use is that the agreement will last for 5 years.

However as we have seen this may not always be the case. As such, the best thing to do is always get IVA advice from an expert debt advisor.

It is really important to be clear on how long your potential IVA debt solution will last as this will help you decided whether an IVA is the best solution for you or whether a debt management plan or even bankruptcy might be a better option.

Related IVA articles

If you are interested in reading more news and expert articles about IVAs, please click on the following link:

http://www.beatmydebt.com/forum/viewforum.php?f=50

What to do next

If you are struggling with debt and are considering an IVA, visit www.beatmydebt.com

Our experts are available to speak to you about the IVA problem and offer further help and advice.

Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems and have been through the IVA process themselves.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.