IVA - INDIVIDUAL VOLUNTARY ARRANGEMENT

 

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors where you will come to an arrangement with people you owe money to, to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe then generally after 5 years your debt is classed as settled.
Due to its formal nature, an Individual Voluntary Arrangement (IVA) has to be set up by a licensed professional.

How does an IVA ( Individual Voluntary Arrangement) work?
Once a decision has been made that an Individual Voluntary Arrangement (IVA) is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a repayment amount will be agreed with you. Once proposals have been drawn up you will need to check and sign these and return them.
An application may then be made to the court for an Interim Order. Once this is in place, no creditors will be able to take legal action against you. A creditor meeting will be arranged to which you should attend.
For an IVA to be approved, creditors will be called upon to vote either for or against the arrangement. If only one creditor votes "for" the IVA, the IVA will be approved. However, if only one creditor votes against the IVA and they represent less than 25% of your total debt, the meeting will be suspended for a later date and other creditors who did not vote will be called upon for their vote.

If the creditor who voted against the IVA represents more than 25% of the total debt you owe the IVA will fail. This is because an IVA will only ever be approved if 75% in monetary value is voted for. If any of the creditors don't vote, it is assumed that they will vote FOR the IVA.

The IVA will be legally binding. As long as you keep up the repayments, when the term of your agreement is finished, you will be free from these debts regardless of how much has been paid off. During the period of your arrangement your financial situation will be reviewed regularly to see if there has been any change in your circumstances.

Don't confuse an IVA with a Debt Management Plan
It is very important that consumers do not confuse an IVA with a Debt Management Plan, which is not legally binding.
Most IVA cases are based around one, affordable, monthly, payment, over a period of 60 months. An IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP) who then presents it to creditors at a creditors meeting. In the case of a consumer IVA it is unusual for any creditors or their representatives to attend the creditors meeting as most prefer to vote by fax or by post.

The rules of an IVA state that providing 75% (in value terms) of those that have voted, vote to accept the proposals (with or without modifications) then the IVA is agreed and becomes legally binding on all other parties whether they voted or not.

When an IVA is accepted the IP's role becomes that of supervisor, monitoring the IVA's progress and ensuring that the terms and conditions that were agreed to at the creditors meeting are properly adhered to.
It is the debtor's responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with terms and until the successful completion of IVA. It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the IVA.

Upon the successful completion of the IVA the debtor will be considered debt free even though they may not have actually paid off all of their debts in full. Any outstanding balances are written off (known as a composition of debts) and the debtor is then free to make a fresh financial start. It is worth noting that if you do enter into an IVA with your creditors and you have an endowment policy linked to your mortgage then you may be expected to cash it in and pay the proceeds into the arrangement. Likewise, if your property has a reasonable amount of equity then it is likely that some of it will have to be released at sometime during the arrangement (usually the end), so it can be paid to creditors. Drastic as this may sound it can be a deciding factor in whether an IVA is approved by creditors and a realistic way in which a debtor can retain their property.

The IVA can be an extremely powerful tool enabling you to clear your debt but it is important to remember that a record of the IVA will be kept on your credit file for up to 6 years which will adversely affect your ability to obtain credit in the future. It may also affect your ability to continue working in some professions e.g finance and legal.

IVA Pros

An IVA acts as a safeguard to losing your home.

A person subject to an IVA can continue to have a current account. Please note the person will not be allowed an overdraft facility though.

An IVA will have a person debt free in up to 5 years.

Up to 75% of your debt can be written off in an IVA

With an IVA you only pay back what you can afford.

With an IVA your creditors can not contact you.

An IVA provides protection from court action.

An IVA will stop the creditors making demands

An IVA will help repair a person’s credit rating.

A major pro of an IVA is your name will not appear in the local paper. This differs from bankruptcy where it is a legal requirement.

A business owner can continue to trade with an IVA

There is no publicity with an IVA

You have more say in the choice of assets made available to the creditors in an IVA.

There are higher dividends to creditors with an IVA.

You can continue to work in the financial sector (FSA) or HM Armed Forces / Police Force with an IVA, where in bankruptcy this would not be possible.

You can continue to be a company director with an IVA. In bankruptcy you cannot.

There is no professional disqualification with an IVA.

You can continue to hold public office positions with an IVA.

The costs of an IVA are lower than bankruptcy.

You keep your assets in an IVA.

The creditors prefer IVAs because they can claim tax relief against bad debts.

Creditors who do not vote for an IVA are still bound by the IVA. This is law.

Creditors who vote against the IVA are still bound by an IVA. This is law.

There are fewer restrictions in an IVA compared to bankruptcy.

IVA Cons

The IVA period is longer than bankruptcy. An IVA can last up to 5 years, whereas bankruptcy is just 1 year.

An IVA is recorded on the Individual Insolvency Register, which is searchable by the public if they wish to look at it.

With an IVA you cannot leave out some creditors. I you do then the creditors can still pursue you.

The IP will monitor wage slips, salary updates regularly. If you earn more then you will pay more into the IVA.

Most IVA cases last 5 years but some can be extended to 6 years if required by creditors.

With an IVA the insolvency practitioner may request some of the equity in your property is released as part of the IVA deal with creditors. If you are unable to do this then the IVA may be extended by another year at the creditor's discretion rather than recommencing enforcement action.

The cons of an IVA is that you must have at least £15000 of debt, to at least 3 creditors.

To do an IVA you must be able to afford to pay at least £200 per month.

An IVA is what is known as a “golden handcuffs deal”. It is a great deal but you are locked in for 5 years.

People in an IVA cannot get further unsecured borrowing.

An IVA will show up on the credit report for up to 6 years.

An IVA means the person will need to pay back substantially more than a bankruptcy.

An IVA must have the agreement of at least 75% in value of the total debts, of those who decide to vote.

If an IVA fails then the person will be made bankrupt.

An IVA can not guarantee the protection of the home or assets because the creditors may insist that the equity or asset values are still attackable.

An IVA is set up and run by an insolvency practitioner (IP). Some IPs are expensive.

An IVA is legally binding.

If you lie on an IVA application it is a criminal offence.