An individual voluntary arrangement (IVA) is an agreement made with creditors by somebody who’s in debt, in order to pay off all or a portion of the money they owe. It’s a formal legal agreement that’s approved by a court, binding the creditors to accept it.
The IVA works on the premise that for those who have serious debt issues, the creditors will be happy to accept a portion of the money owed in lieu of the full amount. For the applicant, it represents a fairly flexible means of dealing with debt problems in a controlled and manageable way whilst removing the immediate pressure of bailiff action.
An IVA must be set up by a qualified insolvency practitioner, and will involve paying regular amounts of money to the creditors through the insolvency practitioner as intermediary. The insolvency practitioner will help the applicant to draw up a repayment plan, and liaise with the creditors to gain their approval. Once the creditors accept the IVA proposal they will not be able to pursue the subject in any other way. An IVA only requires the consent of three-quarters of the creditors, but is binding on all of them.
Benefits vs. Risks
Nobody wants to be in the position where they’re entering into an IVA. But for those who are already mired in debt, they can be a sound way of getting back into control without going through difficult bankruptcy proceedings.
An IVA typically lasts for five or six years, during which time the applicant has to commit to making affordable payments every month, in addition to any lump sum that might have been agreed. Once the final payment is made, any remaining debt is written off and their creditors will no longer be able to pursue them for the outstanding money.
Another massive advantage for those entering an IVA is that if they’re homeowners they’ll get to keep their home, providing they keep up with any mortgage repayments owed. If there’s equity in the property, the debtor will have to look at re-mortgaging in order to service their debt. This comes with the usual risks inherent in taking out a mortgage, such as interest rates and the need to keep up repayments.
Taking out an IVA is not a guarantee of getting out of debt. IVAs can and do fail. This can result in creditors backdating interest on money owed, and taking additional action such as petitioning for the debtor’s bankruptcy.
It’s worth bearing in mind that there are certain debts that cannot legally be covered by an IVA, and these will need to be serviced in other ways. These include court fines, child maintenance, and any money owed as a consequence of fraud on the part of the applicant. Likewise student loans are exempt, as are any debts incurred after the signing of the IVA.
An IVA will be recorded publicly and have a negative effect on an individual’s credit rating. For more information about individual voluntary arrangements and an understanding approach to personal debt, get in touch with Irwin Insolvency for friendly and professional advice.