What is an IVA?
An Individual Voluntary Arrangement is a legally binding agreement which is reached with creditors for the settlement or compromise of outstanding debts.
It is usual for the payment to be on deferred terms and for less then the full amount due (i.e. at a rate of pence in the pound).
Even though full repayment may not be made, once the agreement or arrangement is complete, the individual is exonerated from any balance outstanding. The slate is wiped clean.
The Individual Voluntary Arrangement process is aimed at providing an alternative to bankruptcy. The costs are much less than bankruptcy and the process enables a greater return to creditors. In essence, a win / win situation.
The IVA is a legislation introduced by the government to assist those who are struggling. Unlike, other arrangements it has legal backing and offers the most protection from further action to you, your home and assets.
Individual Voluntary Arrangements are not appropriate for all individuals. Therefore, before embarking on the procedure, you should ensure that you have sought independent and impartial advice from one of our experienced insolvency personnel.
Dependent on your ability to pay, creditors may agree to write off a proportion of the debts you owe them, which will take place on successful completion.
You only have to make regular monthly payments of an agreed amount you can afford for an agreed period although this may increase after annual reviews of your income and expenditure. In some cases creditors will accept a one-off lump sum.
The Arrangement is legally binding so that your creditors cannot change their minds once they have agreed.
Once the IVA is in place your creditors cannot bring any other action against you as long as you maintain your agreed monthly payment.
No publicity in the local papers, although it will be registered on the DBIS Website. Successful completion of an IVA is noted on the DBIS Website also.
The proposal will generally allow you to retain your home, if you are a home-owner.
An IVA is unlikely to affect your professional status. Also you are less likely to lose your job or business than if you were bankrupt (unless your employment contract says otherwise).
IVAs are only suitable if you or another person can afford to make an offer of repayment to your creditors.
Your creditors have to agree on the arrangement through a vote. However we will not suggest this course of action to you unless we think there is a good chance that your creditors will accept your offer.
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. It may also result in your bankruptcy. Failure of an IVA may result in the debts you owe on exit being more than when you entered the IVA.
It may stay on your credit reference file for 6 years (source: Information Commissioners Office Leaflet “Credit Explained”).
Payments into the IVA will tend to be greater and over a longer period than if you were made bankrupt, because of an element of bargain.
What fees will I have to pay for an IVA?
We will ask you to pay the first contribution as scheduled in your proposal. This payment represents the amount payable per month under the arrangement and is required to justify to creditors that the payment is affordable.
The first payment is none refundable, should the arrangement not be approved by creditors.
The monthly payments that you make into your arrangement will cover the payments to your creditors as well as our fees for putting together and supervising the arrangement. In short, the creditors agree that they will accept a lower return from the Arrangement.
Putting it simply, your creditors determine our fees as they come out of what you already owe to them – Nothing more to pay or owe, just your affordable monthly contribution.
If, however, your circumstances are such that your contributions are sufficient to pay in full, after costs, then since our costs are paid from the contributions you make, rather than your creditors, will have borne those costs.
What is the process for getting an IVA approved?
In every case, the first step is to assess whether an Individual Voluntary Arrangement is the most suitable solution for you.
If we feel that it is not or you decide that it is not what you want to do, we will always suggest an appropriate alternative.
For an instant self-assesment try our quick calculator now.
Once we have established that an IVA is appropriate, we will work together with you to determine how much you can realistically afford to pay into an arrangement. To do this we will need to ask you a number of questions about your financial situation.
We will then discuss the figures with you and agree on a monthly repayment to your creditors. In some instances, a one-off lump sum may be offered to creditors in full and final settlement of their claims; for example, by re-mortgaging your property.
Other aspects of your financial situation will also be discussed such as the value of your assets. We will also need to ensure that all your creditors (lenders) are included within the arrangement, including those who you may not have considered yourself.
When your proposals are drawn up and you are happy with them, you will need to sign them and return them to us. In some cases we may make an application to court for an Interim Order. Examples will be where a Bankruptcy Petition has been presented against you or a creditor has obtained a County Court Judgement and is applying for a Charging Order. – When this is in place your creditors cannot take any action against you.
We hold a meeting so that your creditors can consider your proposals. If enough of your creditors (75% in value of those creditors who vote) agree to your proposals the arrangement will become legally binding.
All you then have to do is what you have promised in the proposal. You will maintain your affordable monthly contribution to the arrangement, which we distribute amongst your creditors.
Where the arrangement is based on monthly contributions from your surplus income over a period of time we will conduct regular reviews of your income and expenditure during the arrangement. If during the period of your arrangement you find that you cannot meet the agreed payments we can ask your creditors if they will agree to vary the terms of your proposals.
We want your arrangement to succeed and will do everything we can to help you through it. However, we must point that if you ultimately fail to meet your obligations under the arrangement you will most likely be worse off due to IVA costs and creditors interest and the likely outcome is Bankruptcy.
Once you have fulfilled your obligations you will be free from your debts, even if you have only repaid a fraction of what is owed.
We will assist you through the whole process in drafting your proposals for an IVA, in seeking approval from creditors and in supervising its implementation.
Will an IVA work for me?
At the risk of over-simplification, if you are a home-owner, or in business or in a job that could be prejudiced by bankruptcy, and have debts of over £15,000 owed to more than 3 creditors, an IVA may well be your best option. It must be made clear that, because the IVA needs to be “sold” to the creditors, as a bare minimum it will be necessary for them to get a better return than they would in (say) Bankruptcy, and for you to desire to see that happen. However, if your primary objective is to make the minimum monthly payment, and you have nothing to lose, Bankruptcy may well be a better option for you.
Try our instant calculator to get an understanding of your options. We would urge you to speak to us so we can assess your circumstances properly. Our expert advice is free – let us help you.
Further information on free debt advice in the UK can be obtained from the Money Advice Service.
An IVA is only available to residents of England, Wales and Northern Ireland. If you are in Scotland, don’t worry there is a similar arrangment called a Protected Trust Deed. Please see our Scottish options page here for further details.