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Individuals struggling with outstanding personal debt may have come across the option of an Individual Voluntary Arrangement. The process is well known as a solution for those who find their liabilities becoming unaffordable, but there are often many questions surrounding the subject. Here we take a look at some of the common questions surrounding the IVA process, and answer these accordingly.
What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a personal insolvency process for individuals struggling with unmanageable debt. It is a formal arrangement between an individual and their creditors which breaks the owed sum down into monthly payments based on what is deemed to be affordable for the debtor.
In order to be eligible for an IVA, as well as having a suitable amount of debt to justify the arrangement, you must also have sufficient, regular income to cover the monthly repayments. Your regular outgoings such as bills, childcare, food, and travel will be taken into account when evaluating your eligibility for the arrangement.
Your creditors have no obligation to vote in favour of the proposed terms of your IVA, however, it is likely that they will. For the arrangement to be approved, it 75% of your creditors by value must vote in favour of its terms.
Insolvency practitioners such as ourselves are highly experienced in structuring and proposing IVAs, making them likely to be accepted by most unsecured creditors. However, if the proposed terms of your arrangement are not deemed adequate by at least 75% of your creditors (by value), then it will be rejected. When this happens, it is likely that you will need to explore alternative solutions for personal debt such as bankruptcy.
For a more detailed breakdown of your options in this scenario, click here.
Generally speaking, it is unlikely that an IVA will affect your job. However, certain professions in sectors such as law and finance may be impacted by entry into certain personal insolvency procedures. If you are unsure if entering an IVA will affect your career, it is best to read through the conditions in your employment contract.
During the period of an IVA, as long as the agreed terms are adhered to, you are protected from further action from your creditors. This means that they will be unable to hold you liable for more than it has been agreed that you pay, and cannot pursue you or your assets to cover the debt.
An IVA is most effective for levels of personal debt exceeding £10,000. For smaller quantities, other avenues such as bankruptcy or a Debt Relief Order may be explored.
If a credit check is carried out on you during the term of your IVA, it is highly likely that it will show up on your record. As a consequence, the procedure may negatively impact your credit score, although this is not permanent.
When entering into an IVA, your home is protected. This means that you will not be forced to sell your property under the arrangement, but may be required to release equity in the form of a remortgage if this is available.
If you are looking to buy a property during the period of an IVA, it is unlikely that you will be accepted for a mortgage.
As long as your vehicle is not of excessive value, and is necessary for your job/commitments, you should be able to keep it when entering into an IVA. Terms such as these will be reviewed based on your situation when forming the arrangement.
The method of a ‘joint IVA’ is achieved through ‘interlocking IVAs’. These can be used when both members of a couple are insolvent, and both parties put forward individual proposals
An IVA can last anywhere up to five years, meaning that the repayments can be evenly distributed throughout this term. This makes the repayment of the debt more affordable, and easier to manage.
After the period of an IVA, which can be anything up to five years, the remainder of your debt is written off. Your creditors can no longer pursue you for the remaining amount, as long as the terms of the arrangement have been upheld.
As a licensed insolvency practitioner overseeing an IVA, our fee is deducted before the repayment is distributed amongst your creditors. This is taken into account when drawing up the agreement, meaning there is no additional cost on top of the amount repaid monthly.
During and after the term of an IVA, the threat of creditor action is removed. Once agreed by your creditors, they may not pursue you further for what you owe unless the terms are broken.
Any remaining debt is legally written off after your final monthly payment, meaning creditors cannot pursue you for anything on top of the agreed repayment quantity.
The arrangement is tailored specifically for your personal situation, meaning that it takes into account what is affordable for you. This makes it more comfortable and less invasive than standard debt repayments.
An Individual Voluntary Arrangement is a personal insolvency process in the form of a legally-binding arrangement between an individual and their creditors. It takes into account the level of debt that an individual is able to repay on a monthly basis, after their regular commitments such as bills and rent have been settled. The process is overseen by a licensed insolvency practitioner, who draws up terms between the debtor and their creditors. Once the arrangement has been approved by at least 75% of creditors by value, the debtor is protected from further action as long as the terms are met. The arrangement can last anywhere up to five years, after which the outstanding debt is formally written off.
How we can help
If you are concerned about mounting creditor pressure amid levels of unaffordable debt, we can help. As licenced and regulated insolvency professionals, we have a great deal of experience in orchestrating formal agreements such as IVA. We offer a free consultation with one of our experienced advisors to evaluate your situation, and discuss your eligibility. Get in touch today.