What is an Individual Voluntary Arrangement?
An Individual Voluntary Arrangement (IVA) is the main way to avoid bankruptcy, whilst dealing with your creditors in a controlled manner.
The legal effect of an IVA is to freeze action from your existing creditors, allowing you breathing space to pay off your debts over a period of time, so that you start to get yourself back on track financially. This is all done via an agreed plan known as the ‘proposal’. Read on to learn more about Individual Voluntary Arrangement advantages, and how an IVA could potentially benefit you if you are unable to settle your debts.
Individual Voluntary Arrangement: Definition
An IVA is a legally binding agreement between you and your creditors, whereby you commit to pay back your debts over a period of time. An Individual Voluntary Arrangement under the Insolvency Act 1986 must be set up by an insolvency practitioner. There are benefits, but also risks to consider, so it is important to take advice to ensure it is the best way forward for you.
Is an Individual Voluntary Arrangement right for you?
When you enter into an Individual Voluntary Arrangement, advantages include flexibility. An IVA is generally more flexible than bankruptcy, and can be tailored to suit your individual circumstances.
If for example you own assets such as property or a vehicle, then it may be possible for you to retain them rather than use them to pay off your creditors.
Your insolvency practitioner will help you when it comes to negotiating with your creditors so that any assets you wish to keep are not included in the IVA.
Another advantage of an IVA over bankruptcy is that you won’t lose your bank account. However, under an IVA, you may end up paying more to creditors than you would if you were to become bankrupt.
Whether or not an IVA is suitable for your individual needs is dependent on your personal circumstances.
Your insolvency practitioner will guide you through your options so that you are informed enough to make the choice that is in your best interests.
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What is the process involved in setting up an Individual Voluntary Arrangement IVA?
Your insolvency practitioner may initially apply to the court for an interim order to prevent your creditors taking action against you during the setup phase of the IVA. This is to protect you from any action, such as a bankruptcy order. An interim order is often not necessary, however, if your insolvency practitioner applies for an adjournment to any court action proposed by your creditors.
Once you have discussed your finances with your practitioner, a repayment plan will be calculated. This will then form part of the proposal to your creditors. The proposal will set out your commitment to repaying your creditors over time, usually three to five years.
Together with this document, your practitioner will present the court with a full financial statement, and reasons why the creditors should agree to your IVA and why it would prove more beneficial to them than making you bankrupt.
Insolvency practitioners are very much aware of the likelihood of proposals being accepted, so it is wise to take their advice, otherwise you may find that the court rejects your IVA.
Finally, your IP will call a creditors’ meeting at which they will vote on whether or not to accept your proposal. It is good practice for you to attend the meeting, either in person, or by telephone or video link.
If the proposal is accepted by the majority of the creditors, this will be reported to the court, and then the IVA will be binding on all creditors, even those who voted against it.
How can Insolvency Online help you with an Individual Voluntary Arrangement?
In addition to providing you with a free confidential consultation with one of our licensed insolvency practitioners at a convenient time and location, we will assist in the preparation of the IVA Proposal [i.e. the Debt Repayment Plan] that has to be put to the creditors in order to get their agreement to the proposed IVA.
Where you are trading in business, we will also help prepare the required financial forecasts to be included in the Proposal and, where necessary, speak and / or meet with your business’s bankers and key creditors.
In other words, you can leave everything in our hands as we take care of every aspect of setting up your Individual Voluntary Arrangement, and helping you find breathing space whilst you navigate your way towards an improved financial situation.
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Frequently Asked Questions
What types of debts does an IVA cover and how many can I include?
With an Individual Voluntary Arrangement, most debts can be paid off, although there are some exceptions, such as child support or maintenance arrears, student loans, court fines and TV licence arrears.
Generally, people use an IVA to settle personal loans, catalogue accounts, overdrafts, credit card balances, utility and Council Tax arrears and other outstanding debts or bills.
You can include secured loans, such as mortgages and rent arrears in an IVA, but your creditor will need to give their express permission, which is not always forthcoming.
It is possible to include multiple debts on one IVA, but you will need to make sure you are happy with the repayment amount, and how much you will pay back over time. If you have joint debts, it may not be appropriate to include them on the IVA.
Your insolvency practitioner will advise you on whether your particular debts are suitable for an IVA.
What criteria do I have to meet to get an IVA?
To be eligible for an Individual Voluntary Arrangement, you will need to have some spare income to pay your creditors each month. If however you don’t have much left each month after you’ve paid out all your expenses, but you do have the ability to raise a lump sum, then you may be able to use that to pay your creditors.
Generally, you will need a regular and predictable income to qualify for an IVA. This is due to it being necessary to make regular monthly payments to your creditors over a period of a few years.
You’ll need to declare all your assets to your insolvency practitioner. Failure to do so means you’ll be breaking the law. Assets you’ll need to let the practitioner know about are the likes of property, land or vehicles, or anything else of significant value.
If you own a property, you will usually find that an IVA requires you to have it valued in the final year of the agreement. If there is equity, you will usually need to remortgage to raise a lump sum to put into the IVA. If it is not possible to remortgage, then you will continue to pay the usual monthly amount for the final twelve months.
Will an IVA affect my credit score?
If you have an Individual Voluntary Arrangement in place, you may find it a challenge to obtain credit at first. If you are a business owner, you may be able to get credit for business goods and services, however you may find that the interest rates are higher than normal.
Once you have paid off the IVA, your details will be removed from the Individual Insolvency Register after three months. Details of the IVA will stay on your credit file for six years from the start of your IVA.
If you need to raise more than £500 worth of credit during the IVA period, then you will need written permission from your insolvency practitioner, unless the credit is for public utilities. If you feel you will need credit during the term of your IVA, then it may not be right for you, and it may be worth considering a Debt Management Plan instead.
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For a free, confidential consultation to discover how our insolvency practitioners can assist you with an Individual Voluntary Arrangement, you are welcome to get in touch.
