What is an IVA ?

An IVA is a legal process for those with debt problems. It is a formal agreement between your and your creditors whereby you repay as much as you can afford, usually over a 5 year period. After which, the balence of the outstanding debt is written off.

In simple terms...

With the help of a licensed insolvency practitioner, you work out what you can realistically afford to pay back over a period of time - often 5 years. If 70% of your creditors accept your offer, all your debts and the future interest on them will be frozen at the time the proposal is agreed.

Your creditors will usually forego some of the debt you owe and at the end of the agreed period these debts are written off provided you have kept up with the negotiated monthly IVA payments. As long as you are confident you can maintain the regular monthly payment that is agreed an IVA could be the solution for you.

For those that qualify, an IVA is the best method to sort out those worrying debt problems once and for all, especially if you are a homeowner with equity to protect.

An Individual Voluntary Arrangement (IVA) is a formal arrangement through the county court and can be a way of avoiding bankruptcy. You need to be able to raise a lump sum to pay the creditors or to make regular payments from your income to your creditors.

If the creditors who are owed 75% in value of your debts, who choose to vote, agree to accept the proposal then the IVA is put in place.

Applying for an IVA
To obtain an IVA you will need to appoint an Insolvency Practitioner. The Insolvency Practitioner will act as nominee until the IVA is formally approved and as Supervisor during the remaining term of the IVA. We have licensed insolvency practitioners within the company who would be happy to discuss your case with you.

Risks to Your Assets
Assets such as your home, savings and investments are at less risk than with bankruptcy but they are still at risk. However, because the debtor usually proposes the IVA, and because creditors are being offered regular payments, they tend to be more flexible. It is more usual for creditors to require savings and realisable assets (endowment policies, premium bonds, ISAs etc) to be cashed with the home remaining relatively untouched except for the release of some of the available equity usually towards the end of the arrangement.

Your Future Credit
IVAs do impair your credit worthiness. Certainly whilst the arrangement is in place, credit will be something that you will not be allowed to take without the permission of the supervisor of the IVA.

The Effect on Your Reputation and Stress
IVAs do not have the stigma that is attached to bankruptcy, so the impact on reputation is minimal. IVA's are not advertised in the press. However, they will be recorded on the IVA register held by the DTI. Initiating an arrangement and obtaining final agreement from creditors can be time consuming.

Advantages of an IVA

There is not the stigma or publicity that normally accompanies bankruptcy.
A debtor can continue to trade in a business to generate income.
The debtor is involved in the choice of assets made available to creditors since the arrangement is designed to suit the debtor's situation. All this is providing the creditors are no worse off than if bankruptcy had taken place.
Administration costs are normally lower than bankruptcy, enabling higher payments for creditors.
Creditors can claim tax relief against bad debts just as with bankruptcy.
Creditors who vote against the IVA are still bound by it as long as the required majority (75%) in value of the creditors who have voted agree to it.
The debtor does not suffer the same restrictions imposed on bankrupts. For example, a debtor can still be a company director or be in the armed forces.

Disadvantages of an IVA

Usually only suitable if the debtor has unsecured debts of at least Ł15,000.
Any assets which are agreed to be included in the IVA will still be at risk if you do not maintain the agreed level of payments or negotiate amended terms through your supervisor.
Should the IVA fail, the debtor can still be made bankrupt.
All IVAs are recorded in the DTI register and could appear on the debtors credit file. This could effect any future applications for credit.

Basic Procedure of an IVA proposal

1) You will need to complete and return a questionnaire providing the Insolvency Practitioner with the information he requires to prepare the IVA Proposal on your behalf. The insolvency practitioner or a member of his staff will then arrange a meeting, either by telephone or in person to advise you of your options.

2) You will also be asked to sign a formal letter of instruction, and a letter authorising the IP's firm to contact your creditors. This will hopefully ensure that the creditors stop contacting you and will contact the IP instead. This will naturally reduce any stress and pressure from you.

3) A draft Proposal will be prepared based on the information you have been provided, and will be sent to you for approval. You may be asked to provide further details in respect of any information that may still be outstanding or missing.

4) The draft Proposal is returned to the IP by you with any alterations and missing information required. The IVA Proposal will then be updated and sent out to you for final approval.

5) You will need to sign the Proposal and return it to the IP upon which he will then formally agree to become your Nominee.

6) The IP is then required to make out a report and to comment on your offer to creditors and will then lodge both his report and your IVA Proposal in court. This is a mere formality, and you will not be required to attend court unless there are exceptional circumstances. If there are such circumstances, you will be advised of this at the outset of your case.

7) A Meeting of Creditors will be convened and your IVA Proposal together with the Nominee's Report will be sent to all creditors to consider. You do not have to attend the Meeting of Creditors.

8) On the date of the Meeting of Creditors, the Creditors vote on whether they are willing or unwilling to accept your offer and if 75% by value of those Creditors voting, agree to accept your offer, then the IVA will become approved. The Arrangement will be binding on all Creditors at that stage, whether they voted or not.

9) If necessary the Meeting of Creditors can be adjourned for up to 14 days to consider any revised offers, if applicable.

Fast Track Individual Voluntary Arrangements (FTVA)
Even if you have been made bankrupt it is still possible to have a special form of IVA called a “Fast Track Individual Voluntary Arrangement” which means your bankruptcy order can be annulled. You have to make a payment proposal to your creditors that would mean they will be paid more than they would under your bankruptcy. The Official Receiver runs the FTVA for you if they agree with your proposal. The FTVA is cheaper than an ordinary IVA as there are set fess and costs. If it fails then your creditors could try to make you bankrupt again.