Those concerned with debt are well advised to take the time to learn as much as possible about the options available to them. In this section you will be able to find descrptions written by subject experts of the various solutions. As well as describing how they work you will be able to learn about the strengths and possible drawbacks of each option. Which should you choose? That depends on your circumstances and priorities. We trust that this section of Debt Divas will give you the information that you need to make an informed choice.
“IVA” stands for an Individual Voluntary Arrangement which is a contractual agreement between and individual and his/her creditors, usually to accept a reduced level of repayment over a set timescale. In order to propose an IVA, an individual must be insolvent (unable to repay their debts when the debt repayments fall due). IVAs are generally used as an alternative to bankruptcy – in order to protect assets, to offer a higher return to creditors and to avoid the unnecessary publicity which can sometimes be associated with bankruptcy.
You will require a Licensed Insolvency Practitioner to set up your IVA. You can find a list of such practitioners offering individual voluntary arrangement services (and get online advice via a forum) at IVAadviceforum.co.uk.
To be eligible for an IVA you will usually need to have aggregate debts of at least £7,000, generally with a disposable income of more than £70. These figures are guidelines; different insolvency practitioners have different acceptance criteria.
If you have assets, such as equity in your property, savings or investments or other items of material value, these may also need to be included into the arrangement – but an insolvency practitioner will advise on these areas on an individual basis. Often IVAs are proposed on the basis of lump sums being offered in full and final settlement. These monies can be derived from the realisation of assets – such as the sale of a property – or the introduction of monies from a third party.
The terms of your proposal to creditors may be very flexible, but creditors will generally expect their prospects of recovery to be at least as good as in a bankruptcy and you will likely have to make some lifestyle changes as you adapt to a more structured household budget. You will need to engage the services of a Licensed Insolvency Practitioner (“IP”) to act for you, who is initially known as your “Nominee”, and if the creditors accept your proposal the IP then becomes the “Supervisor” of the arrangement.
Your IVA will be recorded on a public register. Only debts that have been included in your IVA will be written off at the end of the term (following your discharge). When you cease directly paying your debts you will go into arrears (or further into arrears) on your accounts.
Your IP will assist you to formulate your proposals to creditors, which will be circulated prior to a convened meeting of creditors where a vote will be taken as to whether to accept, modify or reject the proposed IVA. In order to be accepted, a majority vote of 75% of those creditors present will need to be achieved. Creditors may put forward changes to the proposal, but they cannot impose them on you as you decide whether to accept them or not. You will not need to attend your creditors meeting in person, but your IP will expect you to be available during that day by the telephone in order that they can act upon your instructions. Creditors do not have to accept IVA proposals.
Once the Supervisor is in office, his/her job is to ensure that you fulfil your responsibilities under the IVA and that creditors get repaid at the earliest opportunity. The costs of the IVA are borne from the monies you are intending to introduce into the arrangement, and a reputable IP will not generally ask you to pay anything in advance. Regular reviews of your ongoing financial situation will be carried out at least once per year, and the Supervisor will report their progress to you at this time. Providing that you comply in full with the terms of your agreement, you will eventually be released from the remaining creditor balances and be served with a Certificate of Completion by way of evidence.
Having an IVA accepted gives you the opportunity to avoid bankruptcy whilst repaying your creditors to the best of your ability over a realistic timescale. They give certainty to a previously uncertain future, and assist with financial rehabilitation leading to an eventual repaired credit rating.
For further details about IVA fees and the work that is conducted Click Here
75% of your creditors (by debt value) must agree to the terms of your IVA for it to be accepted. During the IVA there will be restrictions on your expenditure in order that you are able to contribute what you can reasonably afford to the IVA. The term of an IVA, and therefore these expenditure restrictions, is usually five or six years depending upon your circumstances. Only unsecured debts included within your IVA will have the balances written off at the end of the term.
An IVA will have a very significant effect on a credit record which is likely to be similar to bankruptcy. Any previous IVA may also need to be declared on mortgage applications for many years after an IVA is completed even if it is no longer visible on a credit record. If it is possible to obtain an increased mortgage during an IVA, homeowners may be required to do so in order to release money to help repay their creditors. A mortgage obtained during an IVA is likely to be on less favourable terms than might otherwise be achieved (for example the interest rates may be higher). If a homeowner with equity is unable to re-mortgage during their IVA, the term of the IVA may be extended by one year.
Should your IVA fail it may lead to your bankruptcy.
Warning: If your IVA fails: As a significant amount of your payments into an IVA are taken first to meet your Insolvency Practitioner’s fees, if your IVA fails you will remain liable for the balance of your debt and any insolvency practitioner fees and costs already incurred.