IVAs
What is an Individual Voluntary Arrangement (IVA)?
What debts can I include in an Individual Voluntary Arrangement (IVA)?
How and why would a creditor accept a lower amount?
What are the advantages of an Individual Voluntary Arrangement (IVA)?
What are the disadvantages of an Individual Voluntary Arrangement (IVA)?
What is the Individual Voluntary Arrangement (IVA) process?
What happens to my home in an Individual Voluntary Arrangement (IVA)?
What if my circumstances change?
What if I can’t afford the payments to my Individual Voluntary Arrangement (IVA)?
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What is an Individual Voluntary Arrangement?
An IVA is a legally binding agreement between an individual and his or her creditors. It provides a mechanism by which an individual struggling with a high level of personal debt can clear all their debt.
In order to obtain an IVA you will need to appoint a Licensed Insolvency Practitioner (IP).
Typical IVAs last for 5 years and are contribution based. This means that the individual makes regular contributions out of their income for the term of the IVA. IVAs do however take different forms, which can include:
- a one off lump sum payment from the sale of an asset such as the marital home
- a third party contribution from a friend or a relative
- a combination of any of the above.
Homeowners may be required to release a proportion of the equity in their home and contribute this to their creditors, or perhaps to provide alternative or third party funds to the same value.
The proposed payments can be significantly less than the full amount of the debt owed, but your creditors would be accepting the offer in full and final settlement of their claim.
This means that after this term any balance remaining on your debts is written off.
Once agreed, an IVA will also prevent creditors from adding any further interest to your debt or taking any further action such as obtaining County Court Judgments.
The suitability of the IVA solution will depend on your personal circumstances. We will advise you on this. Normally your personal debts must be above £20,000.
An IVA must be supervised by a licensed insolvency practitioner who is responsible for making sure that you comply with the terms of the IVA and regularly reviewing your circumstances. Top of Page
What debts can I include in an Individual Voluntary Arrangement?
The following debts can and must be included in an IVA;
- Bank overdrafts
- Credit cards
- Loans
- Any shortfall from a secured debt (for example if your house or car has been repossessed)
- Outstanding VAT
- Outstanding debts to the Inland Revenue
- Gas, electricity and water arrears
- Council tax arrears
- Telephone arrears
- Loans from friends and family
The following debts cannot be included in an IVA and you must continue to make payments to them.
- Mortgages
- Loans secured on your property
- Car hire purchase agreements
- Rent arrears (though you can include rent arrears from a previous property)
- CSA or child maintenance arrears
- Student loans
- On going utility bills
- On going council tax bills
- Benefit over payments
- Magistrates court fines (e.g. speeding tickets) Top of Page
How and why would a creditor accept a lower amount?
Your creditors vote on whether to accept or reject your proposal for IVA. It is necessary for 75% of creditors in value, who actually vote, to be in agreement with the proposal for the IVA to be accepted (e.g if you owe a particular creditor £1, and they are the only creditor that votes, that is 100% of the vote).
Where your creditors vote to accept the IVA, a legal agreement is created which is binding on you and your creditors.
An Individual Voluntary Arrangement is often a preferable alternative to bankruptcy both from your point of view and that of the creditors.
In practice most creditors will petition for bankruptcy only as a last resort. This is because the fees associated with bankruptcy are high and, unless there are significant assets to be realised within the bankruptcy, there is often little left for the creditors.
Generally speaking if what is being proposed by the individual will provide creditors with a better outcome than would be achieved in bankruptcy, then creditors will consider any reasonable offer. The repayment proposal is always based on what you can afford to pay during the time agreed. Top of Page
What Are The Advantages of an Individual Voluntary Arrangement?
- It is your offer to your creditors so you remain in control of the process.
- You may only pay back a percentage of your total debt.
- You only have to make one affordable monthly payment, or in some cases, a one-off lump sum payment.
- The arrangement is legally binding on all your creditors. They cannot change their minds once it has been approved.
- Once the IVA is in place creditors cannot bring any action against you, as long as you maintain your agreed monthly payments.
- You are able to operate a 'normal' bank account as long as it does not have an overdraft facility.
- You will know from the start what and for how long you will be paying
- All further interest and charges are frozen.
- Some individuals feel an IVA carries less of a stigma than bankruptcy.
- Gives creditors the greatest possible return over the period, which they would be unlikely to receive using any other agreement.
- No publicity in the local papers.
- It may safeguard your property or other assets, though if you have a house or an interest in a house, the creditors will want to see a proportion of that equity realised and paid into the arrangement.
- Your professional or directorial status is usually protected
- If your circumstances change then most IVAs can be modified with the consent of the creditors. Top of Page
What Are The Disadvantages of an Individual Voluntary Arrangement?
- An IVA is only suitable if you or another person can afford to make an offer of repayment to your creditors.
- Your creditors agree to the arrangement by a vote. We will not suggest the IVA as a course of action unless we think there is a good chance that your creditors will accept your offer.
- If you own your own home, there is a strong likelihood that you will need to obtain a re-mortgage in the final year of the arrangement in order to release some of the equity and pay it into the arrangement.
- Your credit rating will be affected.
- If you do not make the payments to the IVA it is likely that the Arrangement will fail and your creditors will be able to take other action against you. This may result in your bankruptcy. You will probably then be back at square one as, depending on how long the arrangement has been running for, your level of debt may not have reduced. Creditors will also be able to revisit the accounts and add on any interest, which may have been frozen on the day that the arrangement was approved. Top of Page
What is the Individual Voluntary Arrangement process?
1.If you decide that an IVA is the most suitable solution for you, we will collate details of all aspects of your financial situation, including the value of your assets, the full nature and extent of your creditors and help you determine a realistic amount that you can afford to pay into an arrangement.
2.Following this we will discuss our findings with you and agree on the offer to be made to your creditors.
3.The insolvency practitioner (IP) will then draft your proposals for you to review. If you are satisfied with them, you will sign them.
4.The IP will then hold a meeting so that your creditors can consider your proposals. If enough of your creditors agree to your proposals the arrangement will become legally binding on all of them.
5.Once the arrangement in place you must keep to the terms. You must make the agreed payments and once you have complied with these terms you will be free from your debts, even if you have only repaid a small part of the original debt due.
6.During the arrangement the IP will conduct periodic reviews of your monthly payment. If you find that you cannot meet the agreed payments the IP can ask your creditors if they will agree to vary the terms of your proposal. All parties to the arrangement will want it to succeed. Top of Page
What happens to my home in an Individual Voluntary Arrangement?
If you own your own home or have an interest in the property your creditors will want to see some of the equity in the property realised and paid into the IVA in the final year.
Typically in month 54 of the IVA we will have the property valued and ask you to supply a mortgage redemption statement. If there is any equity in the property we will ask you to obtain a re-mortgage in order to release up to 85% of your interest subject to the following conditions:
- if 85% of your share of the equity is less than £5,000, you will not be required to re-mortgage and you will have to make no further payments in respect of the property. (Your monthly payments will continue until the end of the IVA)
- the cost of the additional payments to the mortgage cannot exceed 50% of your contributions to the IVA
- if the value of your property has gone up significantly you will only be asked to realise enough money to pay the outstanding debt.
If you are unable to get a re-mortgage then the Insolvency Practitioner can accept instead
- up to a further 12 months payments
- a payment from another person equivalent to 85% of your equity in the property.
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What if my circumstances change?
The Insolvency Practitioner will conduct an annual review of your income and expenditure if your income increases or your expenses go down you will be asked to increase your payments to the IVA by 50% of your additional surplus income.
You will also be asked to pay 50% of any overtime, bonus or commission you receive into the IVA.
If you receive a windfall such as an inheritance, you will be asked to pay this money into the IVA. Top of Page
What if I can’t afford the payments to my Individual Voluntary Arrangement?
If you find that you cannot afford the payments to your IVA you should ring us immediately.
We will talk through your problems with you and will be able to go back to your creditors to ask them to agree to take a lesser amount or in an emergency situation the Insolvency Practitioner can authorise a payment holiday.
If you do not make the agreed payments to your arrangement then we have no choice but to fail your IVA and this may lead to your bankruptcy.
We realise that five years is a long time and things can and do go wrong. We are here to help but can only do so if you call us and tell us that you have a problem.
Please be assured that we will do everything in our power to help you get through any difficult times and that everyone will want your arrangement to succeed. Top of Page
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