What exactly is an IVA? (Individual Voluntary Arrangement)

Individual Voluntary Arrangement:

A legal and formal agreement between you and your creditors that form part of the 1986 Insolvency Act. It is for people that can no longer afford to make their monthly repayments to creditors in full, but can afford to make a reasonable offer.

An IVA proposal sets out in document form how you are going to repay your creditors, usually over a period of 5 years. It has to be prepared and drawn up by a Chartered Accountant who is also an Insolvency Practitioner.

To establish whether or not you qualify for an IVA, you will be asked a number of questions about your current financial position. This will enable our advisor to calculate how much you can realistically afford to pay your creditors each month.

We will also ask you about any other assets you may have as these may need to be included in the IVA. If you can demonstrate that over the 5 year term that you could pay back a reasonable amount of your total debt, an IVA would be considered a suitable option for you.

IVA’S are not easy to arrange and all care is taken to ensure this is the correct solution for your particular situation. If for some reason your IVA/PTD is rejected, we will inform you and with your permission we will look to find an alternative solution, this could be an informal arrangement (debt management plan).

We have outlined the advantages and disadvantages of an IVA (Individual voluntary arrangement). And if an informal arrangement is recommended we have listed some implications of entering into such informal arrangement.

The advantages of an Individual Voluntary Arrangement IVA include:

The lack of stigma or publicity attached to bankruptcy;
If the client runs a company, it can continue to trade and provide income to fund the IVA;
An IVA can be drawn up to meet the client’s situation, so that assets such as the family home can be excluded so long as the creditors agree — eg, because overall they will be better off than in bankruptcy;
Creditors should receive higher payments than they would in a bankruptcy;
Unsecured creditors who voted against the IVA will still be bound by it.
The client is not subject to the restrictions imposed on bankruptcy and so can still be a company director and obtain credit for the business.
One reduced monthly payment to your creditors.
A court order will stop any legal action by your creditors
Telephone calls and letters from your creditors will stop
Interest and charges are stopped, so the spiral of debt is halted.
Fixed repayment method (normally 5 years) at the end of which all your debts are discharged.
All unsecured creditors to whom the IVA proposal is sent, are bound by the arrangement. Even if they do not agree to the proposal, providing 75% of your remaining creditors in value agree to the proposal.
Unlike bankruptcy, details of an IVA are not openly published, it is a confidential arrangement between you and your creditors. Employers and landlords are not informed.

Disadvantages of an Individual Voluntary Arrangement IVA

Where contributions from income are being made, IVA’s are generally expected to be for a period longer than that in bankruptcy, i.e. 5 years as opposed to 3 years. The 5-year period is often required by creditors as a bargain for allowing the Debtor to avoid the consequences of bankruptcy.
If the debtor (person who owes the money) owns a property & during the period of the IVA the property has equity available, then the creditor can insist that some of this equity be released to further help settle the debt. This usually happens in the third or fourth year of the IVA.
If the Debtor fails to comply with the terms of the arrangement his home and assets can still be at risk if they have not been specifically excluded from the proposals.
If the IVA fails as a consequence of the Debtor not meeting his obligations under it, it is likely that the Debtor will be made bankrupt at this time. There will be no opportunity for a Trustee in Bankruptcy to investigate the actions of the Debtor or possibility of hidden assets.
The client should have at least three unsecured creditors and unsecured debts of at least £15,0000 for an IVA to be a suitable option;
The costs of an IVA are relatively high and may have to be paid in advance.
Assets are at risk if the creditors do not agree to exclude them.
The client will be closely monitored by the supervisor during the period of the IVA and will have to report any changes of circumstances;
IVAs are a matter of public record and so future applications for credit could be affected. Your credit rating will be affected for 6 years, and not only the period of the IVA.