IVA

If you find that you are unable to pay your debts on time, you may wish to consider an Individual Voluntary Arrangement (IVA) to avoid a bankruptcy order. An IVA is a formal arrangement with your creditors that must be set up by a licensed Insolvency Practitioner.

Your creditors must accept the terms of an IVA, which often sees you paying back an affordable monthly amount over a 5 year period. After this period, the rest of your debts will usually be written off, sometimes as much as 70%. Interest charges and further action cannot be taken against you during the term of an IVA, so long as you can meet the agreed repayment plan.

Topics covered in this article:

• An IVA Explained
• What are the benefits of an IVA?
• What are the disadvantages of an IVA?
• How can an IVA help me?

An IVA Explained

An Individual Voluntary Arrangement (IVA) is an arrangement between a debtor and his/her creditors which sets out repayment terms for a debt or collection of debts.

IVA's are an alternative to bankruptcy and insolvency lasting for five years, supervised by an independent insolvency practitioner. Over this time, practitioner will ensure that the agreed payments are made and, provided that the terms of the arrangement have been adhered to for the five years, the debt is accepted as settled.

IVA's have grown in prominence over recent years and there is still considerable confusion in the market. This guide will explain how an IVA works.

1. The start of an IVA proceedings.

An insolvency practitioner, who will oversee the IVA throughout, will discuss your current situation, any outstanding debts that you may have and any assets to determine your eligibility for an IVA as well as what you can afford to repay.

The practitioner may, if necessary, obtain a court order known as an interim order, which prevents any of your creditors from taking legal action against you whilst your IVA proposal is being put together.

2. Meeting with your creditors.

Once your insolvency practitioner has all of the required information, he will prepare a proposal which is your intended repayment contract. This contract details what you propose to repay as part of the arrangement. This will be agreed with you before being finalised. Upon completion of this contract, he/she will report to the court and recommend a meeting of creditors. All creditors will be sent a copy of the proposal.

At the meeting, creditors will vote whether to accept or reject the proposal (whilst it is common for some creditors not to attend the meeting, they will usually vote ahead of the meeting).

If an insufficient number of votes are made in favour of the document, the meeting can be adjourned for up to two weeks. Otherwise, the arrangement is carried forward and becomes binding.

3. The IVA Agreement

Throughout the life of the IVA, you are legally bound to make the agreed monthly repayments directly to your insolvency practitioner, who then pays a dividend to your creditors on an annual basis.

At no point during the IVA can your creditors impose any further charges or interest unless you fail to adhere to the arrangement.

4. Completing the IVA

After the five year period of the IVA has expired, your practitioner will send out a final report and dividend to your creditors and file a certificate of compliance, indicating successful competition of the IVA. From this point, the debts are considered to be settled.

Benefits of an IVA

• An IVA can help to prevent insolvency and bankruptcy. By reaching an arrangement with your creditors you can pay back at least some of the debt that you owe. The rest is usually written off at the end of the IVA term.
• It is a private arrangement that will not be disclosed to the public (unlike bankruptcy)
• Due to its legal nature, further interest charges or court action cannot be brought against you during the IVA period
• You can continue to practice as a professional (e.g. Doctor, Solicitor) and even as a company director as an IVA does not affect your professional status
• An IVA is usually a sensible choice for people with larger debts from multiple creditors (typically over £15,000)
• After you complete an IVA the effects on your credit rating and credit score will not be as severe as if you were made bankrupt
• An IVA ensures that your job is protected and your home is not at risk as long as you can meet the repayment plan agreed with your creditors
• You can even take out a mortgage during the IVA term

Disadvantages of an IVA

• If you have equity in your home, savings or other valuable assets, you may be required to release them to pay your creditors near the end of the IVA term
• Normally, an IVA cannot be used by anyone with debts under £15,000
• You must be able to afford around £200 a month to pay your creditors
• If you fail to meet these repayments, your creditors will take legal action against you and this can often result in bankruptcy.
• Your home could also be a risk unless it was specially excluded from the IVA proposals
• IVAs usually last longer than bankruptcy (3-5 years), meaning that it will take longer to become debt free. Bankruptcy orders usually only last for 12 months.

How can an IVA help me?

In some situations, an IVA may not be the best option and indeed, IVA's are not available to everybody. There are a number of potential debt solution options currently available, each with their respective merits and disadvantages.

To find the best solution for you, use our free Debt Calculator to get an instant appraisal of your current situation and free, expert advice on the options available to you. If you prefer to get free, confidential IVA help over the phone, please Ma href=http://www.debt-free.org.uk/se/calculator/cform">request a call back and one of our trained advisors will be in touch.