Self-Employed IVA

What is a self-employed IVA?

A self-employed IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors. It helps you avoid bankruptcy by paying off part of your debt over a fixed period of time. At the end of the period (usually around five to six years) and providing you keep to your agreed repayment schedule, your creditors will agree to write off the outstanding balance of your unsecured debt.

When you’re self-employed, this kind of arrangement is an effective alternative to bankruptcy. It’s easier for you to continue to trade, without the restrictions imposed by bankruptcy as well as retain your assets.

You make one affordable monthly payment to an Insolvency Practitioner (IP) who will then make payments to your creditors. You could be debt-free in as little as 5 years, with a significant amount of your business and personal debt written off. There’ll be no more threats of legal action, no more chasing from your creditors and no interest added.

You will need to keep to a budget, but your business and personal debts will all be taken care of – and you’ll still have enough money left over to run your home and business, buy clothes and food for you and your family, and keep up to date with all your essential outgoings.

How do I apply for a self-employed IVA?

Your Insolvency Practitioner (IP) will help you put together a forward-looking business cash-flow for the next twelve months, projecting the income and expenditure of the business.

This will show your creditors that the business is profitable and you are able to make reduced monthly payments to them. Your monthly income from the business after tax will then be used to pay your personal living costs, with the amount left over being the amount of money that you can afford to pay the IVA each month.

These payments can be flexible, taking into account any seasonal fluctuations in income. For example, if you’re a gardener and receive most of your income in the summer months and not as much in the winter months, then you can make payments to your IVA as and when you receive your income, providing you pay in the agreed amount over the course of a year.

Advantages

  • You can keep trading, using suppliers and lines of credit
  • You can hold on to any tools, machinery and stock that you need for your business
  • You can structure repayments to suit your cash flow
  • Interest and charges will be frozen
  • You make a single monthly payment
  • Set up fees are included in your monthly payment
  • No legal action
  • Your business assets are protected
  • Your home will be safe
  • An IVA is easy to set up with the support of your IP
  • You will usually pay back less than the full amount you owe

Considerations

  • Your arrangement will be on your credit file for six years and can affect your ability to get further credit
  • Your name will be included on the Insolvency Register
  • IVAs usually last for between five and six years
  • You won’t be able to use store or credit cards
  • You will probably need to open a new bank account that isn’t linked to your business
  • You may need to remortgage your house if there is equity in it
  • Only unsecured debts can be included
  • Risk of bankruptcy if you fail to keep up your agreed payments
  • Only available if you live in England, Wales or Northern Ireland

Will an IVA be approved?

Generally speaking, IVAs are accepted in most cases.

Your IP will take responsibility for preparing your IVA and forward it to your creditors for negotiation. If at least 75% of your creditors (by debt balance) agree to the IVA, then your IVA will be approved and will be legally binding.

In the unlikely event that your IVA is rejected, you don’t necessarily have to go bankrupt. We’ll talk to you about alternative solutions.

Managing your IVA

You’ll be supported right from the start. Your IP is there to explain the process and make it easier for you to succeed.

Don’t worry about projecting your budget over a five-year period. Your IP will review your IVA every year, so if your circumstances change in any way, it can be reworked based on your new situation.

It is also possible to reduce your payments into an IVA, with the permission of your creditors. If it’s a genuine change in circumstances, most will agree.

In a non-self-employed IVA, you can’t usually obtain credit of more than £500 without the permission of the Supervisor. In a self-employed IVA, you are more likely to be allowed further credit if you can afford the repayments and need it for a viable business. For example, if you’re a consultant and have to pay monthly expenses before being paid at the end of each month, it may be possible to have a small overdraft to allow you to pay these expenses.

Do I qualify for a self-employed IVA?

Self-employed IVAs are not available in Scotland – take a look at other debt solutions for Scottish businesses.

Generally speaking, if you work for yourself and sell goods or services, it could be a good option for you. Below are a few examples of who might qualify for a self-employed IVA:

  • Construction Industry Scheme (CIS) Workers
  • Buy-to-let landlords
  • Hairdressers
  • Gardeners
  • Florists
  • Shopkeepers
  • Accountants
  • Childcare providers
  • Freelance designers

How does a Self-Employed IVA Work?

A self-employed IVA (Individual Voluntary Arrangement) works in exactly the same way that a regular IVA does: It’s a legally binding agreement between you and your creditors.

It involves you and your creditors agreeing to a repayment schedule for you over an agreed-upon period of time (usually between five to six years).

When this agreed-upon period of time is over, any remaining debt you have is written off.

When you’re a self-employed individual and have debt, bankruptcy is something that you want to avoid at all costs. This is because bankruptcy would definitely cause you to lose your business; You would not be able to continue to trade.

On the other hand, if you go for an IVA to take care of your debts, then trading will be much easier and streamlined for you. You will not be hindered by restrictions that would have been placed on you if you had gone for bankruptcy.

Not to mention that an IVA will also protect your assets which you will most likely have if you’re self-employed.

As with all IVAs, your self-employed IVA will involve you making a monthly payment for five or six years to your Insolvency Practitioner (IP). Your IP would then distribute this payment among your creditors according to how much debt you owe to each of them.

IVAs will enable you to become free in as little as 5 years. Interest and other charges will be frozen throughout the IVA duration and a significant amount of your business, as well as personal debt, will be written off.

Please note that you’ll definitely have to stick to a budget but expenses needed to run your business will be taken into account when determining your monthly IVA payments.

You will have money left over to comfortably make your payments as well as run your business. Your IP will make sure you’re never paying more than what you can afford.

How does the Application Process for a Self-Employed IVA Work?

Your IP will discuss this with you and help you plan a business cash-flow with you for the next year. For this, you will need to be thorough and honest with your IP about your business’s income as well as your monthly essential expenditures.

The plan laid out by you and your IP in your IVA proposal will aim to convince your creditors that your business is prospering and you will be able to comfortably make your IVA payments each month.

To be clear, the monthly income that you obtain from your business will be used to pay for essential living expenses that you need and the rest of it will act as your monthly contributions towards your IVA.

Please note that the amount of money you pay each month may change depending on your financial circumstances. If you feel that your business is failing and that you may not be able to afford payments, talk to your IP. They may be able to get your monthly payments reduced.

When it comes to debt solutions, an Individual Voluntary Arrangement is one of the most flexible ones which is why it’s a great choice for individuals who are self-employed.

You can also talk to your IP if your profession is seasonal. For example, if your business generates a lot of income in the summer but not as much in the winter, then you can discuss this with your IP. They may be able to draw up a payment plan which fits your needs.

What are some Advantages and Disadvantages of a Self-Employed IVA?

It’s important to weigh your options out before opting for any one debt solution. I feel that making a list of the advantages and disadvantages of a debt solution is a great way to determine whether it would be right for you or not.

Pros
  • It will allow you to continue to keep on trading and running your business. You can also keep using suppliers if you enter into an IVA.
  • IVA payments are very flexible. You can talk to your IP and make changes to them so that they suit your business’s cash flow.
  • All interest and charges on your debt will be frozen when your IVA is in place.
  • You will only be required to make a single payment each month.
  • All additional fees such as your IP’s fees and setup fees are all included within your monthly payments.
  • A self-employed IVA will protect you from all legal action from your creditors. Your creditors cannot pursue action to make you bankrupt and seize your business when a self-employed IVA is in place.
  • All of your business assets (as well as personal assets) will be protected if you enter into a self-employed IVA.
  • Your home will not have the risk of being seized (unlike in bankruptcy).
  • A self-employed IVA is extremely easy to set up thanks to your IP. They will sit down with you and give you all the information you need to set up your IVA as well as to keep it running smoothly.
  • A significant portion of your debt will be written off.

All of these advantages make a self-employed IVA a very attractive option for self-employed individuals.

That being said, there is some information that often doesn’t reach individuals who are considering an IVA: an IVA does have some pitfalls which you need to be aware of as well.

Cons
  • Your IVA is going to be recorded in your credit file and that information is going to stay there for six years. During these six years, it’s going to make it very hard for you to obtain credit. Please note that it stays in your credit file for six years even if your IVA ends in five years or even earlier than that.
  • An IVA causes your name to be logged into the Insolvency Register. This may cause you difficulty in different parts of life. For example, an employer may check the Insolvency Register and if they see your name there, they may not give you the job you’re applying for. Similarly, a landlord may check the Insolvency Register, see your name in there and choose not to give you the space you’re looking to rent. Your name gets removed from the Insolvency Register within three months after you make your last IVA payment.
  • IVAs last quite a long time. They typically last five years but could be extended if you miss payments or pay them late. With the inherent unpredictability that comes with being self-employed, there definitely is a chance that you could miss a payment or be late for one, causing your IVA to be extended.
  • You will not be allowed to obtain credit of more than £500.
  • You will most likely need to get a new bank account opened which isn’t associated with your business.
  • You may be required to remortgage your house in the final year of your IVA if there is equity in it.
  • There are certain types of debt which cannot be included in an IVA.

    • It’s important that when you’re looking for an IVA firm to handle your IVA that you ensure that they are authorised and regulated by the Financial Conduct Authority (FCA).

    The Financial Conduct Authority has a set of guidelines which IVA firms have to stick to in order to ensure you are being treated fairly.

    If you’re having trouble deciding between debt solutions and need more information, I highly advise seeking advice from an independent debt charity such as National Debtline or Payplan.

    Conclusion

    There’s a lot of false information out there which causes self-employed individuals dealing with debt to be apprehensive about opting for an IVA while in fact, an IVA is actually one of the better-suited debt solutions for such individual.