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Glossary: IVA |
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IVA:
The Individual Voluntary Arrangement is -
IVA is a formal agreement between you and your creditors where
you will come to an arrangement with people you owe money to, to
make reduced payments towards the total amount of your debt in
order to pay off a percentage of what you owe then generally
after 5 years your debt is classed as settled.
An IVA contract is brokered on your behalf by a Licensed
Insolvency Practitioner (IP) who will assess your situation and
approach your creditors on your behalf. He or she will attempt
to negotiate a settlement with your creditors, or at least the
majority of them. For your creditors though, even a reduced
payment of up to 75% of your original loan amount could be a
better option for them than the expense of pursuing a claim for
bankruptcy. They can also claim tax and VAT relief on the bad
debt.
In a standard IVA you will pay what you can realistically afford
monthly over a period of five years. This will be a single
monthly repayment into a fund managed by your Insolvency
Practitioner. After the period of the IVA is over, your debts
will be cleared and you will be debt free.
Any IVA agreement becomes legally binding, so you should not
enter into one if you have no realistic prospect of meeting your
repayments. However, the contract is legally binding on your
creditors too. That means if you manage to keep up your
repayments, your creditors cannot take any further action
against you. Also, unlike bankruptcy, an IVA is a private
agreement between your debt advisors and your creditors, and no
one else need know your circumstances. Furthermore, in an IVA
you don’t risk losing your job if you work in a profession where
being bankrupt can lead to you being dismissed.
An individual voluntary arrangement begins with a formal proposal to your
creditors to pay part or all of your debts. You need to apply to
the court and you must be helped by an
insolvency
practitioner. Any agreement reached with your creditors will
be binding on them.
How does it work?
· First, find an authorised insolvency practitioner prepared to
act for you. You can find an Insolvency Practitioner by using
our IP Finder Tool (a searchable
database of 1000 Insolvency Practitioners). You can also find a
Practitioner through your local court or your local Official
Receiver’s office.
· Then you apply to the court for an "interim order". This
prevents your creditors from presenting, or proceeding with, a
bankruptcy petition against you while the interim order is in
force. It also prevents them from taking other action against
you during the same period without the permission of the court.
· The insolvency practitioner tells the court the details of
your proposal and whether in his or her opinion a meeting of
creditors should be called to consider it.
· If a meeting is to be held, the date of the meeting and
details of the proposals are sent to your creditors. Only those
creditors who had notice of the meeting are bound by the
arrangement, so it is important that you have accurate records
of all your creditors’ names and addresses. Otherwise, the
arrangement might fail because the practitioner cannot contact
all the creditors and, therefore, bind them to it.
· At the meeting, the creditors vote on whether to accept your
proposals. If enough creditors (over 75% in value of the
creditors present in person or by proxy, and voting on the
resolution) vote in favour, the proposals are accepted. They are
then binding on all creditors who had notice of, and were
entitled to vote at, the meeting.
· The insolvency practitioner supervises the arrangement and
pays the creditors in accordance with the accepted proposal.
What will an individual voluntary arrangement cost?
You should ask several practitioners what they charge before you
ask any of them to act for you. Insolvency practitioners are
usually accountants, some are solicitors and their fees are
similar to those charged by members of these professions for
other kinds of work.
When can you make an individual voluntary arrangement?
It is better and cheaper for you to set up an individual
voluntary arrangement before you become bankrupt but you can
propose one afterwards. If you do propose an individual
voluntary arrangement after bankruptcy, it is possible for you
to nominate the Official Receiver to be the supervisor of the
arrangement. This type of arrangement is called a fast-track
voluntary arrangement and is only suitable in certain cases (a
separate publication called 'Fast-track voluntary arrangements'
is available from your local Official Receiver’s office).
Are there any restrictions?
Generally speaking no, but the court cannot make an interim
order if you have applied for one in the previous 12 months.
There is no maximum or minimum level of debt and no maximum or
minimum level of repayments, except what is acceptable to your
creditors. An arrangement might particularly suit you if:
· you have friends or relatives prepared to help pay or
contribute towards paying your debts;
· your income enables you to pay regular sums to creditors.
What are the advantages of an individual voluntary
arrangement compared to going bankrupt?
· It gives you more say in how your assets are dealt with and
how payments are made to creditors. You may be able to persuade
your creditors to allow you to retain certain assets (such as
your home). You will obviously have to act responsibly and
flexibly in order to reach agreement with your creditors.
· You avoid the restrictions which apply to a bankrupt (see
section 10).
· Because you will not have to pay some of the fees and expenses
which are charged in a bankruptcy, the overall costs are likely
to be less.
Can an individual voluntary arrangement be proposed by a
member of a partnership?
Yes. You can propose an individual voluntary arrangement on your
own which must take into account the claims that the creditors
of the partnership have against you personally. It will not
affect the rights of the partnership creditors to take action
against the partnership itself or against any other partner.
Alternatively, you and your partner(s) may wish to propose an
arrangement involving the partnership creditors and the personal
creditors of the partners. This can be done in two ways:
· the partners may propose interlocking voluntary arrangements,
with each partner making proposals for their own debts and the
debts of the partnership; or
· the partnership may propose a partnership voluntary
arrangement (usually accompanied by voluntary arrangements for
each partner).
An authorised insolvency practitioner must help you to make
proposals to creditors. He or she will be able to advise you
which procedure to follow.
Warning: If you enter a
voluntary arrangement but fail to give full details of your
assets and debts or fail to do what you have agreed under the
arrangement, then the insolvency practitioner, or any creditor
bound by it, may still petition for your bankruptcy |
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