Individual Voluntary Arrangement (IVA)

What is IVA or Individual Voluntary Arrangement?

IVA is a legal process between the debtor and the creditors that allows a debtor to pay what he or she can afford. It was introduced and established by the Insolvency Act 1986 in the United Kingdom. IVA helps a debtor to avoid the severe consequences of bankruptcy and clear all his unsecured debts.

In this process, the debtor will pay a specific amount every month to the creditor over a specific period of time. This period can be extended up to six years within which the debtor must pay the agreed amount in full.   top

IVA Documents:

IVA is supervised by an Insolvency Practitioner who administers the whole process. Based on the debtor’s financial status the insolvency practitioner will prepare a draft with details of repayment. The draft has to be signed by the debtor before it goes to the court for an Interim Order. If the Interim Order is granted by the court, it stops creditors from taking any legal action against you.

You must submit the following documents to the insolvency practitioner along with the application form for an IVA:

• Property Valuation or sale of similar properties in the same street or local area (from estate agents or newspapers)
• Mortgage Statement which is issued annually, generally during December 31st or March 31st.
• Endowment Policy Surrender Value: For this you can call up the telephone insurance company to get a confirmation on the current surrender value of the policy (both verbal and written).
• Get an original copy of car finance/HP agreement and any recent letters.
• Get at least three months consecutive pay slips/wage payment advices for yourself and your spouse (even if the spouse is not liable for any debts).
• Get creditors’ statement/letter that shows the current amount owed to each creditor and your current account/reference number.
• You even need to get a financial history that clearly explains the causes behind your financial crisis. Often debt escalation is the most prior cause. However creditors can relate easily to reasons such as health issues, unemployment, etc.

The insolvency practitioner drafts the IVA proposal that shows the amount of funds or assets that can be made available to pay off the debt. The draft is produced in the court for approval and once it is approved, the insolvency practitioner calls for a creditors meeting. If the draft gets 75% votes from the creditors, it becomes valid and the insolvency practitioner becomes the supervisor of the IVA schedule. Henceforth you make the agreed monthly payment to the creditors. Here is a step by step guide to IVA.

Throughout the period, your credit status will be reviewed regularly to ensure if your financial situation has improved. After successful completion of the IVA, you will become debt free as any remaining debt will be written off.   top

IVA criteria:

It is essential to note the criteria for proposing an IVA. In the current market scenario, all major banks have left the decision of accepting an IVA with professional reprehensive of well-known accountancy firms such as PriceWaterhouseCoopers and KPMG.

1. For proposing an IVA debt amount has to be greater than £15,000.
2. You need to have three or more creditors. If you have three debts from the same bank, an IVA will not be accepted.
3. There should be a disposable income over £200 per month, assets to release or a third party to contribute into the arrangement. You must also pay creditors at least 25 pence in the pound dividend. At times many IVA cases fail due to lack of a decent monthly payment by the applicants.
4. It is essential to have a regular income structure.
5. You must be able to prove the fact that you have allowed for reasonable necessary living expenses like food, utilities, travel expenses, council tax, etc. Creditors constantly chase those who state too much or too little for food. Some IVA cases fail because applicants spend too much on car hire purchase payments.
6. It is very important for the Insolvency Practitioner to prepare a positive ‘Nominees Report’ which showcases a professional opinion as to whether IVA is a bonafide offer.

Once all these criteria are met, the IVA team will get details on all the available debt solutions and recommend an IVA accordingly. (N.B: Please note that IVA criteria are negotiable and so please call or email the IVA team for a no-obligation assessment).    top

What happens after an IVA?

Now, there are two possibilities: i) Success ii) Failure

If the IVA terms are successfully completed, a Certificate of Completion is released. This is a notice to the creditors to write off any arrears and liabilities that is the debt amount which they won’t get back. After the completion of IVA, the Insolvency Practitioner will have to notify all the relevant organisations regarding this. The Court Service and the Department of Trade and Industry are notified. The creditor Reference Agencies are also advised.

Now the IVA will be deemed as completed on your credit file. Once you choose an IVA, it will be on your file for 6 years. This means that if your IVA culminates in the 5th year, there will be one year left for it to be on your credit file before you can make a new beginning. You will also get a statement that will include all the monetary transactions incurred or paid out during IVA. top

But what will happen if an IVA fails?

If an IVA turns out to be unsuccessful, there will be a risk that either the creditors or the Insolvency Practitioners will petition for your bankruptcy. For this the Insolvency practitioner generally puts aside some funds. But this petition for bankruptcy can actually put your assets at risk, as could your job. So you should seek advice in case such a situation arises. As an alternative, you can even choose other options like Debt management Plans or an informal offer to repay your debts. You will get plenty of choices. So always make the right move!   top

Advantages of IVA:

1. Pay what you (the debtor) can afford
2. Avoid or stop any legal action from the creditors
3. Stop further interest or other charges on the unpaid dues
4. You may obtain benefits from the government legislation to clear debts
5. IVA guarantees fixed amount every month (usually for 60 months)
6. It does not carry the social stigma like bankruptcy

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Disadvantages of IVA

1. Home and assets may be at risk if creditors decide not to exclude them.
2. You must have reasonable income to pay the creditors
3. Creditors may not agree to the repayment proposal
4. It takes longer to make you debt free (5 years)
5. During IVA, you can not get more unsecured loans
6. It stays in your credit history for 6 years

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