| Index »INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA) |
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| (IVA) - The Basics |
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Ideally suited for unsecured debts over £15000 |
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Write off a percentage of the overall debts |
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Debt free within 3 - 60 months |
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Safeguards house & car and avoid the consequences of bankruptcy. |
| An Individual Voluntary Arrangement (IVA) is a legally binding agreement between a debtor and creditor in full satisfaction of all debts and is an alternative to being forced into bankruptcy. An IVA proposal is prepared with the assistance of a Licensed Insolvency Practitioner, who will suggest what contributions can be made based on the individual's ability to pay. Creditors can then either accept or reject the proposal and if the required majority of creditors accept the proposal, the proposal is binding on all creditors even if they voted against. |
| It enables the debtor to come to a formal debt repayment arrangement with his or her creditors. It is a legal process that gives an individual struggling with their debts protection from creditors. An Individual Voluntary Arrangement usually allows the debtor to only repay a percentage of his or her debt over an extended period of time. The government introduced the Individual Voluntary Arrangement in 1986 as an alternative to bankruptcy In comparison to bankruptcy the IVA is in the best option for both the debtor and the creditor. |
| Typically an IVA lasts for between 1-5 years during which time interest on debts is frozen and repayments are made to creditors from the realisation of assets or from contributions made out of earnings. The agreement requires the approval of at least 75% in value of the creditors, and once approved is legally binding on the individual and all his creditors, whether or not they voted in favour of it. |
| A proposal for an IVA may be made by a debtor even if he is already subject to bankruptcy. If the arrangement is not kept to, the insolvency practitioner or your creditors can apply for a bankruptcy order to be made instead.
Upto 75% of your debt can be written off with an individual voluntary arrangement. With an IVA you make monthly repayments according to what you can afford. |
| From the creditor's point of view, an Individual Voluntary Arrangement is attractive owing to the high fees associated with bankruptcy. Furthermore, unless the debtor has significant assets there is often not much left for the creditor after bankruptcy proceedings have been completed. From the debtor's perspective, an Individual Voluntary Arrangement is also a better option than bankruptcy. Unlike with bankruptcy, an Individual Voluntary Arrangement lets the debtor have a say in how his or her assets are dealt with and how debt re-payments are made. |
| Insolvency Practitioner fees can be expensive and they will usually want some payment in advance. It is worth asking them for an initial free meeting to discuss whether an IVA is appropriate. You can obtain names of local insolvency practitioners by contacting the court offices or official receiver for your area. The procedure enables the individual to put a proposal to his creditors for a scheme (a composition) in satisfaction of his debts. A composition is an agreement under which creditors agree to accept a certain sum of money in settlement of the debts due to them. The procedure is flexible in the sense that and can take different forms depending on the terms of the proposal agreed by the creditors. |
| Records of IVAs are kept on a public register. To find out if someone has an IVA, records can be searched by anybody including members of the public either in person, by post or by fax. A copy of the search form can be printed from the website below or you can ask the Insolvency Service to send you a form. Your IVA will remain on the register until it is completed or terminated. If you have any equity in your property (or any other significant valuable assets), you may be required to release some or all of this as part of the IVA agreement. |
| The IVA that is proposed to the creditors is based on what the debtor can realistically afford to pay over a five year period. In the majority of cases, it is made up of 60 monthly payments. However, it can also include lump sum contributions such as from the release of equity from a home. When the IVA has been agreed, it generally runs for five years. During this time payments are made on a monthly basis into an IVA fund governed by the supervisor. |
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| Cost |
| Most insolvency practitioners take their fees from the Individual Voluntary Arrangement fund that is paid to your creditors. In other words, In most situations, it is your creditors, not you, who are paying the insolvency practitioner's fee. |
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| IVA AND YOUR CREDIT REPORT |
| Records of IVAs are held for six years on credit reference agency files. The IVA is marked "complete" by the credit reference agency when they are informed of this by the IP supervising the IVA. Always make sure you send a copy of the letter from your IP to the 3 credit reference agencies so that your credit file is up-dated. |
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| The IVA Process |
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| Insolvency Practitioner |
| To arrange an IVA you need to find an insolvency practitioner prepared to act for you. The insolvency practitioner prepares a proposal to put forward to your creditors. This will contain details of your financial situation, assets and liabilities and also how you suggest dealing with your creditors. |
| At the beginning of the process there is fact finding and evidence gathering where full details of the individual's affairs, creditor details, assets and income are obtained. The IVA proposal is then drafted and once agreed by the individual is signed, lodged in Court and then sent to all creditors. The actual drafting of the proposal, lodging it in Court and sending to Creditors is normaly arranged by the Insolvency Practitioner. All the individual has to do is to provide the information, ensure that the proposal is correct and sign it.
The insolvency practitioner then circulates a Nominee's Report which gives a professional opinion about the Individual Voluntary Arrangement being proposed and whether a creditors' meeting should be called. |
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| Process - Time Scale |
| The process of applying for and setting up an IVA generally takes about 60 days. This includes things like collecting evidence; drafting the IVA proposal, sending the proposal to the creditors and waiting to hear whether or not it has been accepted. Normally debtors will only need to take part in small activities like providing evidence and signing the relevant documentation. |
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| Creditors Meetings & Agreement |
| The creditors hold a meeting to discuss whether to accept or reject the Individual Voluntary Arrangement. A vote of 75% in favour is needed to accept the Arrangement. If they decide to accept the Arrangement (IVA), they are legally bound to do so. 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. A Supervisor is appointed by the creditors to administer the Individual Voluntary Arrangement and to ensure that the creditors get paid according to the agreed terms. |
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| Interim Order |
| Once the Individual Voluntary Arrangement proposal has been completed, an Interim Order is filed with the court. When the Interim Order has been filed, your creditors are prevented from issuing bankruptcy proceedings against you until they've decided whether to accept or reject your Individual Voluntary Arrangement. |
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| Approval |
| For an IVA proposal to be approved creditors must vote in favour and a majority of 75% by value of creditors who actually vote is required. Once the proposal is approved it is binding on all creditors, even if they did not vote or even voted against. Once an IVA proposal has been approved creditors can no longer take any legal action against the individual. They can only claim their share of the dividend due to creditors from the IVA. |
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| Payment To Creditors |
| The voluntary contribution payments will be paid by the individual into the IVA fund which is managed by the Insolvency Practitioners. It is the money in this fund that is used to pay the creditors. The Insolvency Practitioner will agree creditors claims, will ensure that the individual is paying the correct amount and when sufficient funds have accrued will pay a dividend to creditors. |
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| Completion Of IVA |
| At the end of the supervisory period (IVA Period) the individual is released from their outstanding debts which are written off. |
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| IVA SETTLEMENT METHODS |
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| Monthly Contribution IVA |
| This is where the individual offers monthly voluntary contribution payments for a period of up to five years. The amount that is offered is whatever the individual can reasonably afford, can be as little as £250 per month and will usually be substantially less than debt repayments that were previously being made. All interest and charges will be frozen during the course of the IVA, and at the end of the five year period the arrangement is concluded and the remainder of the creditors' debts are written off. |
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| IVA - Lump Sum Settlement |
| The lump sum IVA is an alternative to a voluntary contribution IVA. This method involves the payment of a one-off lump sum in full settlement of the debts. Such a proposal may be suitable where maximum offer for a remortgage or secured loan for consolidation is not enough, or a family member is prepared to make a one-off payment that generates a higher dividend than if monthly payments were made or where there is equity in a property that can be re-mortgaged. A lump sum IVA may be attractive to creditors, as it will enable them to be paid in a matter of months rather than waiting for up to five years. |
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| Monthly Contribution + Lump Sum IVA |
| Where a client may have substantial debts and could only offer a low monthly contribution in their IVA, but own their own property, some insolvency practitioners may be able to negotiate a lower monthly contribution with a lump sum paid towards the end of the IVA. This can be arranged by way of a re-mortgage. |
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| IVA - Advantages |
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| Protection From Court Action |
| Once an IVA is in place, your creditors are not allowed to take further legal action against you such as County Court Judgements as long as you stick to the terms of the arrangement. |
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| Percentage Of Debts |
| An Individual Voluntary Arrangement (IVA) allows you to only pay back an agreed percentage of your debts. |
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| Ceasing of Harrassment |
| It is illegal for your creditors to harass you whilst an Individual Voluntary Arrangement is in place. |
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| Single Monthly Payment |
| At the beginning of the arrangement, you agree with your creditors what you can afford to pay each month. Then, all you need to do is make a single payment into a special bank account normally once a month. The money collected is shared out to the creditors on your behalf. All you have to worry about is a single affordable monthly payment. In some cases, you can pay a one-off lump sum. |
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| Legally Binding Fixed Agreement |
| Once agreed, the IVA is legally binding on all the creditors. This means that they are not allowed to make sudden changes or demands to the arrangement. Therefore, you know exactly where you stand and exactly how long it will be before you are debt free. |
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| A Private Agreement |
| If you undertake an IVA, it is a private matter between yourself and your creditors. There is no publicity in the local papers (Though it will be entered in the IVA register). No-one will be told about your situation (other than your creditors) unless you choose to tell them yourself. |
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| Professional Status Intact |
| If you file for bankruptcy then you are not allowed to hold certain public offices. However, An Individual Voluntary Arrangement doesn't affect your professional status or your ability to hold public office. If you hold a professional position (e.g. doctor, solicitor, accountant) or are a company director or member of the police/armed forces, you can carry out an IVA without any adverse effects to your job. |
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| Interest And Late Payment Charges Frozen |
| After the IVA has been put in place, your creditors can not add further charges or interest to any of your accounts covered by the agreement by law. After five years, if the IVA has been completed according to the terms of the agreement, then all of the debts are deemed to have been cleared. |
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| Ability To Operate A Bank Account |
| You are allowed to have a regular bank account so long as it doesn't have an overdraft facility. |
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| Assets |
| Unlike being made bankrupt, then all of your assets will be vested in your trustee and might have to be sold to repay your debts. However, with an Individual Voluntary Arrangement, you can keep your assets. |
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| Credit Rating Can Be Repaired |
| Once you have completed your Individual Voluntary Arrangement, you are deemed to be debt free. Individual Voluntary Arrangements represent a relatively a better way to clear your debts and to make a fresh start. During your IVA, you will not normally be allowed to borrow more money ( However , you may be able to take a mortgage while within an IVA). Once you have successfully completed your arrangement, you are once again allowed to borrow money and your credit rating will be repaired. You will not be carrying the stigma for life. |
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| What Are The Disadvantages Of An IVA? |
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| Minimum Level Of Debt |
| Normally you will only be able to undertake an IVA if your total unsecured debt is more than £15,000. In addition, you will need to be able to afford a monthly payment of at least £200-250. |
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| Obligation To Honour |
| You are bound by the by the terms of the IVA and is obliged to honour the repayment schedule agreed throughout their IVA period (between 3 and 60 months). If you do not keep to the terms of the IVA then the Insolvency Practitioner (IP) or your creditors can make you bankrupt. |
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| Non-Acceptance |
| If creditors do not accept the IVA proposal you are back to square one. You cannot make another IVA proposal for 12 months. |
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| Prospect Of Losing Fee Paid |
| If you paid an up-front fee for your IVA and it is not accepted, then you will have lost the fee and be in a worse position than when you started. |
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| Your House |
| If you own your house the IP and creditors may make you agree to sell your house as part of the IVA. It is standard for IVA agreements to include a clause that you will get your house valued after a set number of years with a view to giving most of the Value or "equity" in your house to the creditors. You may be able to pay instalments for an extra year to cover the amount of equity in your home. However it could mean selling your house if you cannot raise the money. Your options may include you or a partner taking out a new loan and even securing it on your house. This may be difficult as your credit rating may not be good enough to get a loan through a reputable lender and you would be putting your house at risk. |
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| Affordability |
| There is a risk that the IVA is agreed on the basis of monthly payments that you cannot afford long term. You must be very careful that the payments are set at a realistic amount in the first place. |
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| Change Of Circumstances |
| If your circumstances change and you can no longer afford the payments your IVA may end if the IP cannot persuade the creditors to accept a new agreement. |
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| No Unsecured Borrowing During The Arrangement |
| While you are in an IVA, you will not be able to use your store or credit cards. You will normally not be allowed to borrow any more money until you have successfully completed your arangement. It may however be possible to change an existing mortgage or take a new one while you are in an IVA. |
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| The IVA AND BANKRUPTCY – A COMPARISON |
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| Public Advertisement |
| Whilst an IVA is in place, the creditors have to freeze all interest on the debt. After five years, if the IVA has been completed according to the terms of the agreement, then all of the debts are deemed to have been cleared. |
| Unlike Individual Voluntary Arrangements, there is a real social stigma associated with bankruptcy and they cannot be kept private because they are always advertised publicly. The bankruptcy announcement is usually published in your local paper along with your name, address and occupation. However, an Individual Voluntary Arrangement is a private agreement with your creditors. This means that no-one outside it needs to be told about the Individual Voluntary Arrangement and so there won't be any publicity in your local papers. |
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| Professional Status / Public Office |
| If you file for bankruptcy then you are not allowed to hold certain public offices. However, An Individual Voluntary Arrangement doesn't affect your professional status or your ability to hold public office. Employment status will not be affected. If you hold a professional position (e.g. doctor, solicitor, accountant) or are a company director or promoting, forming or managing a company or member of the police/armed forces without the permission of the court. |
| Unlike with bankruptcy, an Individual Voluntary Arrangement lets the debtor have a say in how his or her assets are dealt with and how debt re-payments are made. An Individual Voluntary Arrangement also enables the debtor to avoid some of the restrictions that apply to bankruptcies. |
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| Costs |
| Bankruptcy proceedings are more costly for the debtor and creditor than Individual Voluntary Arrangements. |
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| Assets |
| If you are made bankrupt, then all of your assets will be vested in your trustee and might have to be sold to repay your debts. However, with an Individual Voluntary Arrangement, in most cases you can keep your assets. |
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| Fast Track IVA |
| 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 put forward 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 Fast Track Individual Voluntary Arrangement is cheaper than an ordinary IVA as there are set fees and costs. If it fails then your creditors could try to make you bankrupt again. |
| From April 2004, under the Enterprise Act, there are new rules on how to get an IVA after you are made bankrupt. You can apply for a Fast Track IVA by putting a proposal to the Official Receiver even after you are bankrupt. The Official Receiver may agree to act as supervisor of the IVA if they feel it will produce a better deal for your creditors than they would receive through bankruptcy. |
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| Main Aspects Of Fast Track IVA |
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There are set fees for this process so costs are reduced. |
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There is no formal creditors meeting. |
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The proposal is sent by post and creditors can either take it or leave it. |
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The IVA proposal cannot be modified. |
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If the IVA is agreed, the Official Receiver will annul your bankruptcy order. |
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If your IVA fails the creditors could make you bankrupt again but the Official Receiver will not take any further action. |
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| Please note that the topics covered in this section are a general guide and should not be taken as any recommendation or solution. It is not a full and authoritative statement of the law. Suitability of any solution will depend on your personal circumstances. Please seek appropriate expert advice before relying on them. The information contained in this section is of a general nature and no assurance of accuracy can be given. The Author does not render legal or insolvency services.They are subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. |
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