Money Debt & Credit in The Guardian ('How an IVA works')

Guardian, 'How an IVA works'

The first contact with an IVA company is usually by phone, when an adviser should discuss whether or not an IVA is appropriate.

Next, the company sends you and information pack requesting all the details of your debts, income and household expenditure.

One the basis of this information it prepares a proposal to put your creditors, suggesting exactly how much you can afford to pay.

For example, Money, Debt & Credit told us of a Mrs M, in debt to the tune of £31,200.

It offered her a reduction of 74%, cutting the bill to £8,112 and reducing her monthly payments from £1,000 to £213 over five years. The IVA company usually takes about a month to negotiate.

Once it has agreement from 75% of the creditors by value, it becomes obligatory on all creditors. But if more than 25% hold out against the deal, IVA may fail.

Where does the IVA company take its cut? In the example of Mrs M, Money, Debt & Credit said it levied two fees: £1,250 for setting up the IVA plus a "supervisor's fee" for looking after it through its 60-month term. At £500 a year, that bill is £2,500.

In total, therefore, it picks up £3,750. This amount is charged to the creditors, who then take it out of Mrs M's £213 monthly payment.

Emma Lunn