If you are facing bankruptcy, know there is another option. An Individual Voluntary Arrangement (IVA) is an agreement between an individual and their creditors and an alternative to bankruptcy. It is a formal agreement allowing you to pay back your debt over time. Under this procedure, a licensed insolvency practitioner is appointed as nominee to prepare a report on proposals to be put forward to creditors. Under certain circumstances, such as threat of legal action, an interim order can be sought from the court upon its consideration of the proposal which will provide protection from creditors taking further action.
Following the above procedures the nominee gives creditors:
- His or her comments on the debtor’s proposal, including a comparison of what would happen if the debtor was made bankrupt
- The proposal detailing who will be paid what and over what period of time
- Notice of the date and location, at least a fortnight ahead, of the creditor’s meeting
- A list of the assets and liabilities of the debtor, known as a statement of affairs
- A list of creditors
- A guide to the fees charged by the supervisor following approval of the IVA
- A proxy form if a creditor cannot attend the meeting.
IVAs are flexible meaning you can adjust the agreement to suit your needs. But it can also be expensive with other risks so you should consider the negatives as well as the positives before choosing to form an individual voluntary arrangement. An IVA is a formal and legal solution to debt. This means the court recognises and approves of the agreement and your creditors have to stick to it. It’s a form of insolvency but is different from bankruptcy in the following ways:
- An IVA usually lasts five to six years whereas a bankruptcy would often be discharged after 12 months. However, bankruptcy could last up to three years.
- An IVA requires you have a good surplus income, usually over £100, that you will need to pay into the arrangement for the creditors. Bankruptcy requires no surplus income.
- Bankruptcy and IVAs have costs associated with them. With an IVA, a percentage of the money you pay in will go towards Nominee and Supervisory fees with IVA. With bankruptcy, you’ll need to pay a deposit before you go bankrupt, as well as court fees, unless they have been waived.
There are also similarities between IVAs and bankruptcy including:
- Both appear on your credit file for six years
- Both appear on the publicly searchable insolvency register
- Both can affect employment.
How does an IVA work?
Only someone qualified can set up an IVA. This person is known as an insolvency practitioner – either a lawyer or an accountant – and they will charge a fee to complete the IVA. They deal with your creditors throughout the lifespan of the IVA.
Your insolvency practitioner will look at your finances to see if an IVA is likely to be approved for you. They will consider your expenditure and calculate how much money you are able to offer your creditors. They will help you create a proposal for the IVA, discussing what the agreement will mean for your home and assets. Your insolvency practitioner is the go-to person if you have any questions or concerns as they are authorised by a regulated, professional body.
Once you have your proposal and it is accepted, you must add monthly payments to the IVA to repay your debt. These payments go directly to the insolvency practitioner who then forwards the correct money to the creditors while taking a percentage as fee payments for themselves. This percentage is agreed before the IVA comes into place.
First, you need a budget. Your proposal is based on your monthly income and necessary living expenses. The budget is based on the money available after living costs have been deducted.
The purpose of an IVA is to help an individual get out of debt, while providing creditors with a fair deal. So, while luxury living is often out of the question, the IVA isn’t designed to make you struggle financially. Your budget allows for things like bills, food, rent, childcare, travel, school expenses, and clothing.
To create the proposal, there is a lot of information your insolvency practitioner will require. It is useful for you to gather this information before contacting them to make the process faster and smoother. Common types of paperwork they require involves:
- Payslips or bank statements for the last three months
- Your latest mortgage statement and statements for any loans
- All recent creditor correspondence
- If you are a tenant, evidence of rent payments
- Vehicle finance details
- Other financial policies like life insurance, health insurance, or pension contributions.
Your insolvency partner is a professional and is responsible for carrying out most of the work to set up and continue an IVA. If your IVA is agreed, you will no longer have to talk to your creditors, only to your insolvency practitioner.
For the proposal to be accepted, 75% of creditors must vote for it. Any creditors who disagree are still bound by the decision. Creditors can ask for changes to the proposal at the meeting. The creditors who you owe the most money to have the biggest say.
The creditors consider a number of things prior to approval including:
- The amount on offer
- How much you owe
- The value of your assets
- The reasons for your debt
- Your commitment to repayment.
Creditors want to ensure you’ll be able to meet the IVA requirements and pay them.
The benefits of an IVA
There are a number of advantages to this process:
- The IVA process allows you to avoid bankruptcy and property repossession in many cases
- You can make one fixed, affordable monthly payment
- There is no further legal action by creditors as long as you continue to make your monthly payments
- All interest on your debt is frozen
- You could clear debts in as little as five years.
Most IVAs do last five years, however, this isn’t always a guarantee if you miss payments or aren’t able to remortgage.
What happens at the end of your agreement?
As long as you have met all the conditions of your IVA, your creditors won’t be able to make any further claims against you and the balance of any unpaid debt is written off. You will receive documentation to confirm you have completed the IVA and a report will go to your creditors.
How Irwin Insolvency can help
Irwin Insolvency is home to many experienced insolvency practitioners who can help you navigate the insolvency process. If you want to avoid bankruptcy, an individual voluntary agreement could be the right choice for you. Our practitioners will assess your situation and determine whether an IVA will work for you, then get started working on your proposal. All you need to do is provide us with the correct information, fostering a relationship built on honesty, and we will take care of the rest. If an IVA isn’t the right option for you, we have the knowledge and expertise to find out what is the best plan to relieve you of your debt
For more information, get in touch with Irwin Insolvency by calling 0800 009 3173 today.
Get in Touch
With over 25 years of experience, helping people just like you, we are committed to providing you with all the help and advice you need during these challenging times. Simply give us a call, drop us an email or fill in the form to find out how we can help you.
Irwin & Company,
West Midlands B72 1TU
0800 009 3173
Fill in the form below and a member of our expert team will be in touch to discuss how we can help you.