Solution - IVA

What is an IVA?

  • An IVA or Individual Voluntary Arrangement is a legally binding agreement with Creditors.
  • It allows someone who is in financial difficulty to make a formal proposal to settle their debts within a reasonable and fixed period of time - normally 5 years, though this can vary depending on your situation.
  • Monthly repayments are based on what you can afford to pay.
  • After the agreed payment period, any outstanding debt will be legally written off by your creditors.
  • For an IVA to be successful, creditors representing at least 75% of your debt must agree to the proposal.
  • This solution is available to people living in England, Wales or Northern Ireland. If you live in Scotland you may be able to apply for a Scottish Trust Deed which is a similar solution, but it's important to note that it has different benefits, risks and fees associated with it.
Read the FAQs
To take on an IVA a person would usually:
  • Be insolvent, which means they owe more than they can afford to pay each month and have no assets that could pay the debt in full.
  • Have unsecured debts of around £6000 or more.
  • Have a minimum of approximately £80 disposable income available per month.
  • Be resident in England, Wales or N/Ireland.
  • Be able to show sufficient proof of circumstances (ie paperwork).
  • Have a stable income, whether employed or self-employed.
  • Have modest and reasonable living costs.
  • Have an honest and responsible attitude.
  • Be able to budget carefully during the IVA.

An IVA can allow someone to avoid bankruptcy, protect their property (eg the family home) and resolve all unsecured debts in a 5 year period.

Keith White, Senior Debt Advisor, talks about IVAs. Contact Keith White directly here.

Advantages of an IVA:

  • Affordable monthly payments over a fixed period, usually 5 years.
  • Creditors must freeze all further interest, cannot take further legal action and will not make contact during the IVA.
  • Property (such as a family home) is not at risk as it could be in Bankruptcy
  • Once the final payment is made, any outstanding debt is written off by the creditors.
  • The IVA is discreet and can be used by professionals, forces personnel and the police with less chance of damaging career prospects.

Disadvantages of an IVA:

  • An IVA will only deal with unsecured debts.
  • A person's credit rating will be adversely affected and it may take some time for the credit rating to repair. It is not possible to take further unsecured borrowing for the period of the IVA.
  • Creditors do not have to accept an IVA proposal.
  • Whilst in an IVA there are restrictions on a person's expenditure, and payments may go up as well as down.
  • An employment contract may not allow someone to do an IVA.
  • Home owners may have to release available equity from their property through a remortgage, which may be on less favourable terms. If a remortgage is not possible, the IVA may be extended for up to 12 months.
  • Whilst the IVA is not published in the newspaper, it will be entered onto the government insolvency register, which is a searchable public database.
  • If the IVA contributions are not paid on time or the terms as agreed are not met, the IVA could fail which could lead to bankruptcy.

There are fees involved in an IVA, but these are taken from the normal monthly payments into the IVA. The supervisor of the IVA will be a licenced insolvency practitioner who will negotiate this with the creditors involved before the IVA is agreed.

There are 2 types of fees charged by the insolvency practitioner during an IVA;
  • Nominee's fees
  • Supervisor's fees.

The amount of these fees will vary depending on the debtor's circumstances, but will be agreed by both the debtor and the creditors before the IVA is approved.

Nominee's fees: This fee covers all the work which is done leading up to a proposal being considered by the creditors. This includes the drafting of a proposal which includes the production of a comprehensive statement of affairs, the gathering of all key documentation required and extensive analysis of the documentation to ensure that an IVA is both acceptable to creditors and sustainable for the debtor. This is followed by a meeting with the creditors and consideration of any changes requested by creditors. The IVA will only be approved if both the debtor and the creditors agree on any changes. The nominee fee varies depending on how much is paid into the IVA, but is approximately £1100 (information confirmed January 2016).

Supervisor's fees: This fee is paid to the IP and covers all the work which is done after the proposal is approved in supervising the IVA and paying the creditors until the IVA is concluded. The supervisory fees are normally capped by creditors at between 15 and 20% of realisations and are drawn monthly from the monthly contributions. The IP will explain all of this fully to the debtor before the IVA is agreed.

Where a customer wants to apply for an IVA, Group can provide the initial advice, gather basic information from them and pass this with the customers consent to a licenced insolvency practitioner. If the IVA is later accepted Group will receive a referral fee from the insolvency practitioner.

Important considerations for debtors considering a debt solution:

  • Fees may be charged but these will be fully explained before any agreement is made to proceed.
  • Stopping payments to creditors may create further arrears.
  • It is likely that the ability to get credit will be affected.
  • In compliance with Distance Selling Regulations you have a 14 day cooling off period in which to cancel your plan.
  • Not all solutions involve debt write off
  • Your assets and property could be at risk with some solutions.
  • Conditions apply and each application will be subject to acceptance and eligibility.