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An Individual Voluntary Arrangement (IVA) is a formal, legally-binding debt solution plan. It is available as an alternative to bankruptcy for individuals in England & Wales, who are struggling to repay their debts.
What is an IVA?
An IVA is an arrangement between you and your creditors, which most commonly, allows you to repay in one affordable monthly sum. This amount is distributed to your unsecured creditors, i.e. store cards or self-employed business debts on a pro-rata basis. What you pay is calculated based on your income & expenditure, allowing you to live your life reasonably and without creditor pressure, as an IVA prevents creditor threats and bailiff action. An IVA is particularly useful for sole traders who are looking to avoid bankruptcy but can’t secure the finance needed to pay off liabilities.
As a licensed insolvency firm, we can help you come to the IVA arrangement. As a formal repayment plan, it requires a licensed insolvency practitioner (IP) to maintain the agreement. Our fees come out of your monthly payments; deducted before the funds are shared out amongst your creditors. This makes it simple for you, as the fees are automatically deducted and not payable on top of the monthly payments into your IVA.
Creditors will currently be taking (or demanding) repayments from your account irrespective of whether you can afford it. Often, they will agree to an IVA as it can represent a better return than if you were to go bankrupt.
When is an IVA appropriate?
To be considered for an IVA, there are criteria which your situation must meet.
- Having a certain amount of unsecured debt which you are struggling to pay. IVAs are often most effective for debts exceeding £10,000. Other solutions, such as bankruptcy, a debt management plan, or a Debt Relief Order, may be more appropriate for smaller amounts of debt.
- Having an income which can support monthly repayment contributions after your necessary outgoings, such as rent/mortgage repayments, bills, food petrol deductions etc.
Creditors can be flexible in terms of what they deal they agree too. They can take monthly amounts, as well as large lump payments. If there is substantial equity in any assets you own, creditors may expect that some of this equity is released as part of your IVA.
If you are unsure whether you are eligible to enter into an IVA, it’s essential to act quickly. One of our experienced advisors can give you free guidance and walk you through the necessary criteria.
Benefits of entering into an IVA
- An IVA halts all unsecured creditor action (including the use of bailiffs) and takes the pressure off. Once agreed, all parties are committed to the terms.
- IVA proposals are created based upon what is affordable to the debtor, alleviating multiple, unaffordable creditor repayments.
- You can often retain your home through an IVA. Mortgage repayments are also factored into a person’s outgoings when determining the affordability of IVA repayments.
- Any remaining debt is legally written off after your last IVA payment.
Things to consider before entering into an IVA
When considering an IVA, there are some drawbacks which need to be weighed up before you commit, as once accepted by your creditors, an IVA proposal becomes a binding contract.
- It will have a negative impact on your credit rating, although if you already have been struggling with your finances, your credit rating may already be damaged.
- If you are a house owner, you may have to try to re-mortgage to contribute towards your debts when nearing the end of your arrangement.
- Secured debts, child maintenance, student loans and fines are not eligible for inclusion in an IVA. They will, however, be taken into account when establishing affordability.
- Will you realistically be able to pay the monthly amounts required? There is no guarantee that your creditors will accept an IVA.
The IVA process
To formally set up an IVA and begin the process, you would require the help of an insolvency practice such as ourselves. It must be agreed with your creditors and managed by an IP; however, the fees involved would come out of the agreed monthly payments and would not be added on top as extra.
- Assess your eligibility with our experts
- Together we will look through the available options for you and help you decide if an IVA is the best route forward. With our help, you can arrange the best way out of your debt based on your circumstances, including coming to an appropriate agreement with your creditors.
- Preparation of your IVA proposal
- If an IVA is indeed the best way forward for you, the IP will need to collate various documents in order to create a proposal for your creditors to review. These include:
- Contact details of creditors, as well as details of debts owed.
- Proof of monthly income & expenditure.
- Additional details regarding your financial situation, such as assets like your home, car etc.
- IVA presentation & creditor vote
- Copies of the IVA proposal are sent to your creditors. 75% by the value of your creditors need to agree to the IVA for it to be accepted and binding. A virtual meeting is generally held, and creditors generally send their voting electronically or in the post.
- Contractual repayments begin
- If accepted, the proposal becomes a legally binding contract & your monthly repayments begin. Your financial situation will be reviewed annually. If your circumstances change whilst you’re in the process of an IVA, the IP can look to renegotiate the proposal.
- Situation assessed
- If you are a home-owner, part of the initial proposal will look to include a review of the equity in your house after a 4-year period. If this has grown, you may have to refinance to make an additional contribution to your IVA.
- Writing-off of remaining debt
- At the end of your repayment plan, if there is some debt leftover, but is classed as unaffordable to you set out in your initial IVA proposal, it will be written off. Again, this is calculated when the proposal is originally prepared.
Life after an IVA
With a fresh start and the familiarity of the routine of meeting your commitments, it is an opportunity to get back to normality. An IVA will stay on your credit history for six years after the start of the arrangement, so post-agreement, you will need to rebuild your credit rating.
An IVA is a formal procedure, which is a legally-binding debt repayment plan, which is made between a person and their creditors. It’s an alternative to bankruptcy and can represent an opportunity for people to avoid selling their major assets such as houses. As a process, it must be managed by an insolvency practitioner, who takes on two roles as Nominee first and then as Supervisor once the creditors approve the IVA.
How we can help
If you’re worried about creditor pressure piling up on you and think an IVA might be a good option for you, it’s essential to act fast. The more pressure you find yourself under from creditors, the harder it will be to secure an IVA. We can help guide you on the best way forward and advise you as to whether an IVA is the right option for you. With 8 licensed insolvency practitioners, we will be able to represent you at all stages of the IVA. Get in touch, and we can give free advice, via online chat, a phone call or a face to face consultation.
Dealing with creditor pressure
Dealing with creditor pressure is rarely a pleasant experience, so knowing how to deal with your creditors will make things easier. Being aware of the boundaries between reasonable creditor pressure and harassment is important to distinguish between a simple chase for payment and an overstepping.