Individual Voluntary Arrangements (IVAs)
An Individual Voluntary Arrangement or "IVA" is a formal arrangement, designed to be an alternative to bankruptcy.
What is an IVA?
An IVA is an alternative to bankruptcy, which takes the form of a contract between you and the people or companies to which you owe money (your "creditors").
The agreement will be based upon your affordable disposable income. A proposal will be made that a percentage of your disposable income will be paid to the creditors, normally for a period of 5 years. After the end of the repayment period, any remaining debt will be legally written off. Up to 65% of your existing debt can be written off in this manner.
Importantly, during the repayment period, interest and further charges cannot be applied by the creditors. This means that, as long as you maintain the agreed repayments, the stress caused by an unmanageable debt can be avoided - with no more calls from recovery agents chasing payments.
How does the process work?
IVAs are arranged through Licensed Insolvency Practitioners, who provide guidance and advice before acting in a supervisory role during the IVA proposal process. Your IVA Practitioner will ask you for a full and accurate outline of all debts which you owe. They will then draw up a repayment proposal, based on your debts, income and other circumstances. This proposal will normally result in one single monthly repayment, intended to be affordable based on your income and outgoings.
After you have read and agreed to an IVA proposal, a court application may be made for an Interim Order. Once this has been issued by the court, your creditors will be unable to commence any legal action in relation to outstanding debts. You may however be required to speak to your creditors by telephone or to attend a meting with them.
Your IVA proposal will then be presented to all creditors, who are then given the opportunity to decide whether to accept or decline the application. This process can be complicated, depending on the number of creditors, but your IVA practitioner will be able to advise exactly what is required in order for your proposal to be accepted. If 75% of your creditors accept the proposal, the proposal will become legally binding on all creditors, regardless of whether they voted to accept your proposal or not.
Once an IVA has been accepted, you will need to make repayments to your IVA practitioner, who will then divide the money between your creditors. At this stage, it is very important that you meet the IVA repayments, as any failure to do so is likely to result in the IVA becoming void, placing you in danger of bankruptcy. However, this should not be a necessary outcome, as your IVA practitioner will have worked out how much you can afford to repay as part of the proposal process.
Advantages and Disadvantages
Advantages
- Your debts will be cleared within a fixed period (generally 5 years), regardless of whether you have repaid the full amount.
- A fresh financial start once the IVA is completed.
- No further demands can be made by your creditors.
- Avoidance of bankruptcy.
- Normally one simple, affordable repayment.
Disadvantages
- Your credit status may be adversely affected. However, most people opting for IVAs will normally already have poor credit status. An IVA is less damaging to your credit status than bankruptcy, but will still have a negative effect.
- If the IVA proposal is not accepted, your creditors may choose to force bankruptcy. However, most will see that the IVA offers a better chance of recovering a greater amount of the outstanding balance, so will generally avoid this.
- Repayments will be designed to repay as much as possible of the outstanding debt, so your disposable income may be heavily restricted during the repayment period.