A Guide to Individual Voluntary Arrangement (IVA)

A number of solutions exist for individuals with financial difficulties. The IVA or Individual Voluntary Arrangement is an alternative to bankruptcy and has been since 1986. At Debt Alternatives our focus is on providing positive solutions to financial problems and an IVA can offer an ideal solution to many individuals with debt.

An IVA has far less stigma compared to bankruptcy. It is not advertised in newspapers and there is no need to inform your employers. An IVA does not threaten your employment, whereas in some professions bankruptcy could result in you losing your job. Entering an IVA does not automatically exclude you from becoming a company director. It also provides the comfort that the process is being handled by an experienced professional, led by a licensed Insolvency Practitioner.

Who can enter an IVA?

Any individual who is insolvent can enter an IVA.

What are the effects of entering an IVA?

By entering an IVA, you will not be allowed to take any additional unsecured borrowings until such time that your IVA is completed. You are however, with agreement from the Insolvency Practitioner, allowed to apply for a mortgage or change an existing mortgage. The IVA will stay on your credit rating for 6 years from inception, the date the IVA began. You are not blacklisted forever and your credit rating will be restored much quicker than had you continued to struggle on without the IVA.

The IVA will be in force for an agreed period, generally five years, at the end of which the funds available will be paid to your creditors. Any remaining debt due to your creditors over and above the payment made will be written off. At this point, you will not be required to make any further payment in respect of debts incurred prior to entering the IVA.

Your home

The only interest the Insolvency Practitioner is likely to take in your home is in respect of your share in any “equity” available. A valuation of the property will be carried out and the level of any outstanding mortgage or secured loans established. The difference between the value of the property and the outstanding debts secured on the property will therefore be calculated and arrangements made for an agreed sum to be paid to your Insolvency Practitioner. This can be done by re-mortgaging or a payment being made from a third party (often a family member). If necessary, we can arrange an introduction to an Independent Financial Adviser who can provide you with advice on how best to deal with your equity in order to suit your circumstances.

Any other assets

How the Insolvency Practitioner deals with any other assets owned by a person entering an IVA will depend on the value of the assets, their nature and whether they are required for any particular purpose. Our experienced staff will help you find the best way of dealing with any such assets.

Peace of mind

Before you enter an IVA, the Insolvency Practitioner will advise you on the various options that exist to deal with your assets and the effects entering an IVA will have on your finances. An agreement will need to be reached as to how any value in your assets will be realised, and any agreed arrangements will be confirmed in writing.

Protection from your creditors

Once an IVA is approved, your creditors are not allowed to continue to charge you interest or any other charges by law or take any further action to recover the debt unless you fail to maintain the agreed contributions. If you have any difficulties in maintaining payments during the term of an IVA, your Insolvency Practitioner can grant a payment holiday and any missed payments can be added to the end of the agreement.

How much will you have to pay?

The proposals made to creditors will usually include the potential realisations from any assets (as described above) and an agreed monthly contribution from your future income. If you have no assets, an IVA would proceed on the basis of a regular contribution only. The proposals made will be structured in order to best suit your personal circumstances. The purpose of an IVA is to allow you to regulate your finances and achieve the best possible outcome for your creditors. The Insolvency Practitioner is duty bound to review your circumstances on a regular basis. If your personal circumstances have changed for the better you will be asked to increase your contribution accordingly. If, however, there has been a change for the worse the Insolvency Practitioner will contact your creditors and request them to vary the terms of your proposal. If up to this point you have maintained your contributions, your creditors will usually accept the variation.

Fees and costs

An individual entering an IVA will not be required to meet any fees directly. The agreed contribution and proposed asset realisations will fund the Insolvency Practitioners costs and will be deducted prior to any payment being made to creditors.

How long does an IVA last?

An IVA is usually based on a five year period. However, in certain circumstances, this period can be shortened in order to suit your own personal circumstances and to help to achieve the best outcome for all concerned.

In summary the advantages of entering an IVA are:

• Pressure from creditors is removed
• All correspondence and queries will be dealt with by the Insolvency Practitioner
• All interest and charges are stopped
• You can agree the proposal which will be put to creditors with your Insolvency Practitioner, therefore retaining a degree of control over your finances
• An IVA should result in a better outcome for your creditors than bankruptcy and there is no social stigma
• You will not be blacklisted forever
• There will not be an adverse effect on your employment
• So long as you maintain the agreement, you will know when you will be debt free
• If self-employed, you can continue to trade

There are, however, some potential disadvantages:

• If you are a homeowner you may have to release some or all of the equity you have in your property as part of the IVA agreement
• If you have any significant valuable assets, you may be required to sell these
• Failure to maintain the agreed proposal may result in bankruptcy