What Is An Individual Voluntary Arrangement (IVA)?
An IVA is a legally binding arrangement between an individual and his / her creditors that forms part of the 1986 Insolvency Act. It is for people who can no longer afford to make their monthly repayments to their creditors in full, but can afford to make a reasonable offer.
It has to be supervised by a Licensed Insolvency Practitioner, the purpose of which is to enable an individual, sole trader or Partner ("the Debtor") to reach a compromise with his creditors and avoid the consequences of bankruptcy. The compromise should offer a larger repayment towards the creditor's debt than could otherwise be expected were the Debtor to be made bankrupt. This is often facilitated by the Debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other source that would not ordinarily be available to a 'Trustee in Bankruptcy'.
Who Can Do An Individual Voluntary Arrangement (IVA)?
An IVA is available to all individuals, sole traders and partners who are experiencing creditor pressure. It is used particularly by those who own property and wish to avoid the possibility of losing it in the event they were made bankrupt.
It is also often used by sole traders and partners who have suffered problems with their business but wish to secure its survival as they believe it will be profitable in the future. An IVA will enable them to make a greater repayment to creditors than could otherwise be expected were they made bankrupt and the business consequently ceased trading. Everybody's circumstances are different, so it is best to seek professional assistance on your eligibility to enter into an IVA.
How Does An Individual Voluntary Arrangement (IVA) Work?
Once a decision has been made that an individual voluntary arrangement (IVA) is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a 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 is in place, no creditors will be able to take legal action against you. A creditor meeting will b earranged which you should attend.
For an IVA to be approved, creditors will be called upon to vote either for or against the arrangement. If only one creditor votes "for" the IVA it will be approved. However, if only one creditor votes against the IVA and they represent less than 25% of your total debt, the meeting will be suspended for a later date and other creditors who did not vote will be called upon for their vote.
If the creditor who voted against the IVA represents more than 25% of the total debt you owe, it will fail. This is because an IVA will only ever be approved if 75% in monetary value is voted for. If any of the creditors don't vote, it is assumed that they will vote for the IVA.
The IVA will be legally binding. As long as you keep up the repayments, 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 to see if there has been any change in your circumstances.
It is very important that consumers do not confuse an IVA with a debt management plan, which is not legally binding.
The IVA team at companies like Debt Free Me are often surprised to see that few people actually know that the option of an IVA even exists.
Most IVA cases are based around one, affordable, monthly payment, over a period of 60 months.
An IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP) who then presents it to creditors at a creditors' meeting.
In the case of a 'consumer individual voluntary arrangement' (IVA) it is unusual for any creditors or their representatives to attend the creditors' meeting as most prefer to vote by fax or by post.
The rules of an IVA state that providing 75% (in value terms) of those that have voted, agree to accept the proposals (with or without modifications) then the IVA is settled and becomes legally binding on all other parties whether they voted or not.
When an individual voluntary arrangement (IVA) is accepted, the IP's role becomes that of supervisor, monitoring its progress and ensuring that the terms and conditions that were agreed to at the creditors' meeting are properly adhered to.
It is the debtor's responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with terms and until the successful completion of the IVA. It is in the debtor's own interest to maintain his / her payments as failure to pay will almost certainly result in the failure of the IVA.
Upon the successful completion of the IVA the debtor will be considered debt free even though they may not have actually paid off all of their debts in full. Any outstanding balances are written off (known as a composition of debts) and the debtor is then free to make a fresh financial start.
It is worth noting that if you do enter into an IVA 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. Likewise, if your property has a reasonable amount of equity then it is likely that a sum of it will have to be released at sometime during the arrangement (usually the end), so it can be paid to creditors. Drastic as this may sound it can be a deciding factor in whether an IVA is approved by creditors and a realistic way in which a debtor can retain their property.
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health.
