An individual voluntary arrangement (IVA) is a formal, and legally binding agreement between you and your creditors to help you pay off your debts at an affordable rate. Usually, an IVA will last between five and seven years and is an alternative solution to filing for bankruptcy.
There are several financial options that a licensed insolvency practitioner (IP) can help with if you are facing severe financial issues, an IVA being one of them. In this article we will outline the IVA process and provide IVA advice to help you further understand whether it is the right procedure for you.
What is an IVA and how does it work?
IVAs, or individual voluntary arrangement is a legally binding contract between an individual and their creditors. As mentioned above, it is an alternative option to bankruptcy and is often regarded as the best solution for those who have assets. An IVA offers the necessary breathing space to take back control over finances. Debts that are covered via an IVA include personal loans, credit card debts and other unsecured loans.
A licensed insolvency practitioner will oversee the IVA process due to it being a formal procedure. Furthermore, the IP will deliver the IVA proposal, of your intention to repay debts over a reasonable period. Then, the IP will work on your behalf to negotiate the agreement. However, it is your responsibility to disclose all financial details.
More than 75% of voting creditors must accept the terms in order for the IVA to go ahead. Once accepted, the IVA is legally-binding on you and all of your creditors, and the repayments must commence. Once the IVA is in place, creditors are not allowed to add interest or demand more money than is known to be owed.
The role of the insolvency practitioner in an IVA
The insolvency practitioner will have several roles throughout the IVA procedure. Firstly, they will take into consideration all the information you give them to establish whether an IVA is the right solution for your circumstances. If they agree with you that an IVA is the best option, then they will assist in the preparation of your IVA proposals.
After the preparation of the IVA proposals, the IP will prepare a report to give to the creditors. This will include what investigations they have carried out to support your proposals, in addition to a recommendation that your proposals should be accepted. At this part in the process, they are known as the nominee. The nominee will deliver their report along with your proposals, then the creditors will return a decision as to whether the proposal has been approved.
Once the IVA proposal is approved, the nominee then becomes the supervisor. The role of the supervisor is to ensure the terms of the IVA are met by all parties involved. It is their responsibility to balance the interests of both you and the creditors.
How much does an IVA cost?
An IVA procedure does incur some costs. As an IVA can only be initiated through an insolvency practitioner, you will be accountable for the IP fees for initiating the process. The payment method is different for different practitioners. In some instances, it may be possible to distribute the fees over the monthly payments whereas other practitioners may expect the cost of the fees to be settled before the IVA is in place. In many cases, IPs will offer free advice but charge nominee and supervisor fees that will be included in the IVA costs.
Does an IVA place you on the insolvency register?
If you agree to enter an IVA, you will be placed on the insolvency register. This is a public record and includes your name, address, date of birth and occupation. If you work in the financial sector this may impact your role so all options must be considered carefully before entering into the IVA process. You will be removed from the register three months after the completion of your individual involuntary arrangement.
How long does an IVA last?
As aforementioned, an IVA typically lasts between five and seven years. However, the exact timeframe will ultimately depend on your ability to pay back the monthly instalments. For example, it is possible to pay a lump sum up front to reduce the length of the IVA. The insolvency practitioner will put forward in the proposal the number of months in which the procedure will be ongoing, offering viable monthly repayments. In most circumstances, any property that you own will have to be re-mortgaged. However, if this is not an option, generally you will be expected to pay for a minimum of an additional 12 months.
Do I qualify for an IVA?
Individual voluntary arrangements are not always granted as there are certain criteria to meet. For example, you must have enough additional income to propose a proportionate payment of the debt owed to your creditors. It is highly recommended that you take a look at your finances and what you can afford to repay before you enter into the procedure.
The IP will also recommend a feasible amount to ensure you are not paying more than you can afford. They can also assist you with budget management and suggest areas where you can reduce your outgoings.
It is extremely important to consider both the pros and cons before entering into an individual involuntary arrangement.
Pros of an IVA
– An IVA usually lasts no longer than seven years, after which, your debt is repaid.
– Once you enter an IVA a creditor cannot ask for additional payments or interest.
– An IVA can protect certain assets such as your car or home.
– Upon the completion of the IVA you can rebuild your credit rating.
– Creditors receive a better return than if you were to file for bankruptcy.
– An IVA is a legally binding contract which means once you enter it you know exactly where you stand and what payments you need to make each month.
– No further legal action by creditors can be taken against you.
– An IVA has less impact on professional status than bankruptcy.
Cons of an IVA
– You are unable to get credit, which includes borrowing money during an IVA.
– You will have a poor credit rating during the IVA.
– The IVA procedure is longer than bankruptcy.
– You will appear on the insolvency register.
– The total cost of an IVA can be substantial as it will include all creditors and IP fees.
IVA or bankruptcy?
As previously mentioned, an IVA is a formal debt process, however, it is less extreme than filing for bankruptcy. No solution should be entered into lightly, but bankruptcy removes all financial control and has repercussions even after it is complete. Bankruptcy can also have professional implications, with many industries not able to hire anyone who has previously filed for bankruptcy.
If you decide the right solution is to enter an IVA, repayments cannot be missed. An insolvency practitioner can initiate bankruptcy proceedings if you are unable to meet your repayment terms.
Generally, an IVA allows more flexibility than bankruptcy. In some cases, it is possible to keep particular possessions when proposing an IVA. In addition, your banking can continue as normal, whereas with bankruptcy your account is likely to be closed.
What happens after an IVA?
Upon entering a formal debt solution, a note is placed on your credit file and will remain there until the IVA is complete. Additionally, as we already mentioned, your details will be placed on the IVA register. It is highly likely that an IVA will affect your ability to obtain credit. Furthermore, once the IVA is removed from your file it may take a while to rebuild your credit rating enough to obtain credit. This is also true when applying for a mortgage.
However, there are lenders out there that specialise in this area to help build your credit rating.
It is important to seek advice as soon as you recognise you are in financial trouble. The earlier you seek advice, typically the more options there are available to you. Our licensed insolvency practitioners can work closely with you to ensure that you not only enter into the right solution for you, but that a realistic proposal is put forward so that you don’t fail to meet all instalments.