IVA

If you are unable to pay your debts, an Individual Voluntary Arrangement (IVA) may be a good option for you to avoid bankruptcy. Basically, an IVA is an agreement between yourself and your creditors which is set up by an Insolvency Practitioner.

In order to be granted, your creditors must accept the terms of the IVA. This will lead to you paying a reduced rate over 5 years, and at the end of the Agreement (provided you have adhered to it) the rest of your debt will be written off.

Whilst an Individual Voluntary Agreement is in place, creditors cannot charge you any further interest or take legal action against you.

How Does an Individual Voluntary Agreement Work?

IVA’s are often seen as a better option than Bankruptcy. An IVA is a legal agreement between a debtor and all of his creditors. It sets out exactly how much the debtor can afford to pay over the next 60 months.

An Individual Voluntary Agreement must be set up by a licensed Insolvency Practitioner, who will also oversee the terms of the agreement are being adhered to during the 5 years. If you have kept up the payments for 5 years, the debt will be legally settled, regardless of how much of the original debt has actually been paid back.

We intend to use this article to explain what exactly an Individual Voluntary Agreement (IVA) is.

How does an Individual Voluntary Agreement begin?

First, you need to speak with an insolvency practitioner to outline your current financial situation. He will be able to look your current assets, debts and earnings and tell you if you are eligible for an IVA, and how much you could afford to pay back. If you are not eligible, he may be able to give you further debt advice.

It may be possible for the practitioner to get an interim order – this will stop any creditors taking legal action against you until your IVA proposal has been finalized.

Meet with all of your creditors

Your insolvency practitioner will prepare a proposal which will be the basis of your repayment contract. This outlines exactly how much you are offering to pay back during the 60 months of the agreement. A copy of this will be sent to all of your creditors, as well as reporting to the court that a meeting of creditors is required.

When the meeting takes place, creditors will have the chance to vote on whether to accept your proposal, or reject it. Creditors do not need to attend the meeting to vote – they can send their vote in advance.

In order for the proposal to be granted and become legally binding, 75% of the creditors must agree to it. If there is not enough votes to grant it, it can be adjourned for 14 days.

During an Individual Voluntary Agreement

Through the 60 months of the IVA, you are legally required to adhere to the payment schedule that was agreed. These payments are made on a monthly basis to your insolvency practitioner, who will then pay your creditors annually.

During the agreement, your creditors would be breaking the law if they attempted to charge you any further interest or fees. This stands as long as you keep to the repayment terms in the IVA.

After you complete the IVA

Your insolvency practitioner will file a certificate of compliance at the completion of your IVA. At this point he will send you a final report and you debts would be cleared, regardless of how much you actually paid back.

Benefits of an Individual Voluntary Agreement

• There will be no notices placed in local newspapers – unlike Bankruptcy Notices.
• May suit your profession – for example an accountant can continue to work during an IVA but could not whilst bankrupt.
• An IVA will not have the same negative impact on your credit rating as bankruptcy would.
• Creditors cannot take any legal action against you while the IVA is in place.
• You should be able to retain ownership of your family home.
• An IVA helps you avoid bankruptcy and the legal problems that come along with it.

Negatives of an Individual Voluntary Agreement

• If you cannot afford £200 per month to pay towards your debts, you will not qualify.
• If you don’t have at least £15,000 of debt you probably won’t be able to get an IVA.
• IVA’s last longer than a bankruptcy (60 months compared to 12 months).
• If you fail to make the agreed payments, creditors will take legal action against you which will likely result in bankruptcy.
• You may need to take equity back out of your home to pay a lump sum towards your debt.