IVA : Individual Voluntary Arrangement
Individual Voluntary Arrangement : IVA
An Individual Voluntary Arrangement ( IVA ) is a formal agreement between you and your creditors where you come to an arrangement with the companies and people you owe money to. The agreement is to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe (sometimes as little as 65%). After a fixed period of time, generally 5 years, your debt is classed as settled. Due to its formal, legal, nature, an IVA has to be set up by a licensed professional called an Insolvency Practioner.
Using an IVA enables you to cut your debts to an affordable level and clear them over a fixed period. The arrangement should offer a larger repayment towards your debt than could otherwise be expected were you to be made bankrupt. You can even take out a fresh mortgage while in an IVA. What’s more, it is a totally private arrangement – nobody needs to know about it apart from you, your insolvency practitioner and your creditors. An IVA ensures that your home is protected and your job is not at risk
Why would I use an IVA?
It is a legally binding agreement between you and your creditors ( the people you owe money to).If you are in financial difficulties it helps you to make a formal proposal to settle your debt.
Your affordable monthly payments are based on your disposable income (your earnings minus your expenses such as rent/mortgage/food/travel to work etc). Once the final payment is made, any outstanding debt is legally written off. The arrangement can write off up to 65% of your debts (subject to your circumstances).
The creditors you can include are in an IVA are: -
- Banks (loans and overdrafts)
- Finance Companies
- Credit cards
- Store cards
- Charge cards
- Customs and Excise (VAT)
- Inland Revenue
- Loans from friends and family
You can't include your mortgage, hire purchase loans, fines, debts incurred through fraud, maintenance / child support arrears or arrears on rental property.
You should also note that because of the costs of setting up an IVA it is usually only used if your debts exceed a total of around £15,000.
How does an IVA work?
Debts are settled within a reasonable and fixed period of time (often a period of 5 years). Any interest and other charges will be frozen and creditors are not allowed to demand additional payments.
Once a decision has been made by the insolvency practioner and yourself that an IVA is right for you, you will be asked questions regarding your current financial situation. Based on the information you have provided, an affordable repayment amount will be agreed with you. Once proposals have been drawn up you will need to check and sign these and return them to your Insolvency Practitioner.
An application may then be made to the court for an Interim Order. Once this Order is in place, no creditors will be able to take legal action against you for the outstanding debts. Although it is possible that you may be asked to attend your creditors meeting (normally held 2 to 4 weeks after your creditors have been informed), this does not happen often, normally you are just asked to be contactable by phone on the day of the meeting in case there are any questions or amendments needed to the arrangement. In fact, it is unusual for any creditors or their representatives to attend the creditors meeting as well because many prefer to vote by fax or by post and save the time and expense of attending a meeting.
For an IVA to be approved your creditors will be asked to vote either for or against the arrangement.
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. (If any of the creditors don't vote, it is assumed that they voted FOR the IVA.
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 by the Insolvency Practioner to see if there has been any change in your circumstances.
It is your responsibility to pay the agreed payments to the insolvency practioner who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with the terms of the arrangement until the completion of the IVA. It is in the your own interest to make the regular payments as any failure to do so will almost certainly result in the failure of the IVA, leading to further action.
Upon the successful completion of the IVA you will be considered debt free even though you may not have actually paid off all of your debts in full. Any outstanding balances are written off (this is known as a composition of debts) and you are then free to make a fresh financial start. You will be given a "Statement of Completion" and you should send a copy of this to all the credit reference agencies so that they can update their credit records.
It is worth noting that if you do enter into an Individual Voluntary Arrangement 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, this may leave you to find more funds when your mortgage matures. Likewise, if your property has a reasonable amount of equity then it is likely that a some of it will have to be released at sometime during the arrangement (usually towards the end), so it can be paid to creditors. Although this sounds worrying may well be a deciding factor in whether an IVA is approved by your creditors and, because it normally happens at the end of the arrangement, this can be a method in which a debtor can retain their property while paying off the debt and moving into a smaller or cheaper property at the end of the arrangement.
Unlike being declared bankrupt there is no limit to your business activities so, if you are a business owner you can carry on trading.