How Much Does an IVA Cost & What Fees Are Included?

Individual Voluntary Arrangements (IVAs) are a formal debt solution available in the United Kingdom. For readers in the United States, it is important to understand that IVAs are not part of the U.S. financial system. U.S. debt solutions operate under different legal frameworks, such as bankruptcy, debt management plans, or debt consolidation. This article explains the costs and fee structures of an IVA as it functions within the UK.

Components of IVA Costs

An Individual Voluntary Arrangement involves several types of fees for the Insolvency Practitioner (IP). These fees are not an additional charge on top of debt repayments; instead, they are integrated into the overall payments made into the IVA. The primary components include the Nominee’s fee, the Supervisor’s fee, and various disbursements.

The Nominee’s fee compensates the Insolvency Practitioner for initial work involved in setting up the IVA, covering professional costs before approval. This includes assessing the debtor’s financial situation, drafting the formal IVA proposal, and presenting it to creditors for their approval. Typically, this fee ranges from £1,000 to £3,000, or it might be capped at an amount equivalent to the first four to six months of IVA payments.

Once the IVA proposal is approved by creditors, the Insolvency Practitioner becomes the Supervisor, and the Supervisor’s fee applies. This ongoing fee covers management of the IVA, which is typically five to six years. The Supervisor’s responsibilities include:
Collecting monthly payments from the debtor
Distributing funds to creditors
Conducting annual reviews of the debtor’s finances
Handling creditor queries
Ensuring all terms of the IVA are met
This fee is often calculated as a percentage, typically 15% to 20%, of the money collected and distributed to creditors, or it may be a fixed monthly amount.

Disbursements are out-of-pocket expenses incurred by the IP during the IVA. Reimbursed from IVA funds, these cover administrative necessities, such as:
Registration fees for listing the IVA with the Insolvency Service
Insurance to protect funds paid into the IVA
System maintenance fees
Specific legal advice costs
Property valuation costs
Minor expenses like postage and general administration may also be included.

How IVA Costs are Structured

IVA fees are structured so individuals do not face upfront charges. Insolvency Practitioners do not demand payment from the debtor before the IVA is formally approved. Instead, the Nominee’s fee is paid from the debtor’s initial payments after creditor acceptance.

All IVA fees, including the Nominee’s fee, Supervisor’s fee, and disbursements, must be approved by creditors. The IVA proposal, detailing the debtor’s financial situation and repayment plan, includes a breakdown of these projected fees. Creditors vote on this proposal, and their acceptance signifies agreement to the fee structure.

Both Nominee’s and Supervisor’s fees, along with any disbursements, are deducted from the monthly payments the debtor contributes to the IVA. The debtor makes one consolidated payment, and the IP allocates portions to cover fees before distributing the remainder to creditors. If assets are realized, like property equity, fees are also deducted from these funds.

While these fees reduce the total amount creditors ultimately receive, creditors agree to this arrangement. They view the IVA as a beneficial alternative to bankruptcy, which could result in a lower return or greater administrative burden. The Insolvency Practitioner manages the process and ensures a structured repayment plan.

Factors Influencing Overall IVA Expense

Several variables can influence an individual’s total financial outlay within an IVA, affecting the overall “cost.” Total debt impacts the IVA’s financial scope. Higher debt levels may lead to higher total payments into the IVA, and potentially higher Supervisor’s fees if calculated as a percentage of funds managed.

The duration of the IVA influences total expense. Most IVAs last five years, some extend to six. A longer term means Supervisor’s fees, particularly if a fixed monthly amount, are collected over a longer period, increasing total fees.

An individual’s disposable income determines monthly IVA payments. Higher disposable income allows for larger monthly contributions, meaning more funds are collected over the IVA term. Since fees are deducted from these collected funds, a larger fund accommodates higher total fees, even with consistent fee structure.

The realization of assets, like property equity or windfalls (e.g., inheritance, lottery), influences the total amount processed through an IVA. If the debtor has home equity, the IVA may include provisions for realizing it, often through remortgage or sale. These additional funds contribute to the pool from which fees are deducted, potentially increasing total fees.