What is an IVA?

The Truth About IVA Debt Write-offs

"We can write off 80% of your debt."

"Call us today and we'll wipe off 95% of your credit card debts."

Such claims, whether they appear on TV, in the papers or on the internet, are pretty hard to resist if you are struggling with debt. But these headlines are misleading. The vast majority of individuals will never be granted write-offs of this scale on their personal debts. Such headline-grabbing percentages are more likely to relate to a vanishingly small number of IVAs for people who have used their personal credit cards to make payments to a limited company.

It's true that Licensed Insolvency Practitioners may be able to persuade creditors to write off some of your debts, but this will be determined by your ability to pay and by the write-off policy held by your particular creditors. A more realistic expectation is that you will be let off between 25% and 70% of your outstanding debts.

How are debt write-offs calculated?

The first thing you do when you embark on an IVA is complete a questionnaire that details all your income and all your essential expenditure, including your mortgage if you have one. What you pay into the IVA is what's left after you've paid for all of your essentials each month, plus a modest amount for personal spending. If this payment plan means you still won't pay off all you owe within a five year period, your creditors may agree to write the remainder off.

What are my creditors likely to agree to?

Creditors' policies regarding write-offs vary from company to company and are subject to relatively frequent change. That's one of the reasons it's more prudent to work directly with a Licensed Insolvency Practitioner. In other words, understanding what policies creditors are following increases the chances of getting your IVA accepted by this group.

In broad terms, bank creditors like HSBC and Barclays are becoming less lenient, but specialist debt-recovery firms are often willing to raise the level of write-offs. Once we know exactly who you owe money to, we can give you a pretty good idea of what you can expect in terms of write-offs.

Phillip Allen is a Licensed Insolvency Practitioner with 20 years experience in helping people sort out their debts.