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.
- 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.
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, IVA.com 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 IVA.com 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.
IVA Step by Step Guide
You give permission to be contacted by a licenced insolvency practitioner (IP) as you wish to find out if you can apply for an IVA.
We gather some basic information from you including personal details, details of your creditors and your income and expenditures. This will be forwarded to the IP so they can contact you and provide you with regulated debt advice.
The IP will call you and explain fully all of the options you have available including the IVA. They will also check through the supporting paperwork you provide proving your situation; this would include documents for proof of income, bank statements and proof of identity. This ensures smoother processing and a higher chance of success.
If you still wish to proceed, the Licensed Insolvency Practitioner will prepare a draft IVA proposal on your behalf. They will become the proposal Nominee. In agreeing to act for you, the IP must be convinced that your proposal is in the best interests of your creditors, that there is a clear advantage for your creditors over bankruptcy and that you are doing the very best you can. If you are self-employed or your situation is particularly complex, you may need to have a meeting face to face with the Insolvency Practitioner.
Each of your creditors is sent a copy of your proposal. They will be given two weeks to consider it. They may accept it, accept it with modifications or reject it. No modification of your proposal will be accepted without your agreement.
At the end of the two week period, a creditors meeting is held. The meeting is chaired by the Insolvency Practitioner. Normally your creditors will choose not to attend and vote by proxy. If creditors representing 75% of the total value of your debt agree to your proposal, it will then be binding on the others. All creditors must then freeze interest and additional charges.
The Court is informed of the result of the meeting and the Licensed Insolvency Practitioner is normally appointed as the Supervisor of the Arrangement. They will monitor your monthly payments, supervise the disposal of any assets and fulfil any other requirements as agreed in your IVA.
Once you have met all the terms of your IVA including making all necessary monthly payments, you will then have settled your debt in full. Any outstanding debt will be written off under the law and you will be left debt free to turn over a new leaf.