IVA - Individual Voluntary Arrangement

The purpose of an IVA is to enable the Debtor to reach a compromise with his/her creditors in order to avoid the consequences of bankruptcy.

The final compromise should offer a larger final level of capital for the creditor’s debt, than could otherwise be expected were the Debtor to be made bankrupt (Simple economics - they want as much money back as possible). This is often facilitated by the Debtor making contributions to the arrangement from their personal income over a an agreed period of time (typically 60 months - 5 years)

Who Can Benefit From an IVA

An IVA is available to all individuals, who are experiencing the pressure of debt and is a particularly popular option for whose who own their own property. Therefore avoiding the loss of their home through bankruptcy.

The IVA Process

First of all the debtor needs to ascertain the full extent of their debts (big and small).

The debtor then needs to locate a Licensed Insolvency Practitioner who will work on the case. These are very easy to come by and there are equally charities who be there for assistance and guidance.

The Licensed Insolvency Practitioner reviews all of the information (with a view to obtaining an Interim Order), prior to submission to the courts and creditors.

An Interim Order is an order made by court, precluding creditors from taking any action against the Debtor whilst a meeting of creditors is called and held to decide whether the proposals are acceptable to them or not.

Subject to the granting of the Interim Order, the following information will be circulated to the creditors:-

  • The Nominee’s comments on the debtor’s proposals
  • The Proposals
  • Notice of the date and location of the meeting of creditors to vote on the proposals
  • A Statement of Affairs this effectively being a list of the assets and liabilities of the debtor
  • A schedule advising creditors of the requisite majority required to approve the IVA
  • A complete list of creditors
  • A guide to the fees charged by the Supervisor following approval of the IVA
  • A form of proxy for voting purposes

The creditor(s) meeting is held no earlier than 14 clear days after the above has been circulated to the creditors.

The purpose of the meeting of creditors, is to decide on the viability of the Debtor’s proposals with or without modifications, (which can be requested by creditors at the meeting).

Upon approval of the IVA proposal a Supervisor is appointed (usually the Nominee) to ensure the proposals are adhered to and distributes the dividends to the relevant creditors.

Assuming the debtor complies with the terms of the arrangement upon completion of the IVA he / she will be fully discharged from all liabilities.

The major tips for a successful IVA

It is in the debtor’s best interest to consult professional advice at the early stages when considering an IVA. If the IVA is the recommended course of action, they would be wise in composing an offer that ensures a higher return to the creditors than would otherwise be returned were the Debtor to be made bankrupt (bankruptcy).

Be honest when declaring your assets and/or anticipated future earnings. False declarations are likely to result in the subsequent failure of the IVA.

Advantages of an IVA to Debtors

IVA's enables a Sole Traders or Partners to continue to trade and generate income towards repayment to creditors (retain assets etc) which would otherwise not be the case if the individual was to declare bankruptcy.

IVA's place no restrictions on personal credit although in practice can prove difficult to obtain and loans as the debts in question will already be a critical stage (defaults, arrears, charges etc).

IVA proposals are drawn up by the debtor and are flexible, ensuring the accommodation of personal circumstances.

IVA's do not impose restrictions on the debtor unlike bankruptcy e.g., not being able to act as a director of a limited company etc.

The Advantages of an IVA to Creditors

The costs of administering an IVA are considerably lower than bankruptcy.

IVA’s operate as an insolvency procedure and creditors can still reclaim tax and VAT relief as a bad debt.

Disadvantages of an IVA to Debtors

IVA’s are generally expected to last far longer than a bankruptcy, i.e. 5 years as opposed to 1-3 years. The 5-year period is often advantageous to the creditors as it allows the debtor to avoid the consequences of bankruptcy.

If the debtor fails to meet the terms of the arrangement, their 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 their obligations, it is likely that the debtor will be made bankrupt.

How much does an IVA Cost?

IVA's typically do not cost you the debtor a single penny in additional charges, the only charge to the debtor is the fixed monthly payment that has been agreed to continue over the five year period. The government reccomend that a minimum level of the arragenged monthly payment should be £250.00 pcm. If you can't afford to make such a payment you may well find it hard to attain an completed and fully agreed IVA plan. In any case we urge you to seek the advise of an insolvency specialist.

Can I get a mortgage after an IVA?

Yes there are specialist mortgage lenders in the mortgage market who will provide mortgages to people with an IVA in place. Funny enough getting a mortgage for £180,000 will be easier than getting an unsecured loan for £5,000, simply because the debt is secured and creditors interests are secured on tangible assets.

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