Individual Voluntary Arrangement
Individual Voluntary Arrangement
An Individual Voluntary Arrangement (IVA) is a way of going bankrupt without actually going the whole hog. Essentially, you come to an agreement with all your creditors about how to pay off the debts. It’s done under the supervision of a licensed Insolvency Practitioner (usually an accountant or lawyer) who usually does all the work with you and for you and, once in place, it has the force of law.
The good thing about an IVA is that it stops your creditors from knocking at your door and it enables you to have a great deal more control over how your assets are dealt with than you would with bankruptcy. It also does not affect your professional status, if you have one, although a note of the IVA will remain on your credit record for six years. The bad thing is that it all costs money to implement — and that’s money that you could have used to pay off your debts. So you should certainly shop around for the cheapest offers when you’re looking for an Insolvency Practitioner as fees vary considerably.
Also note that, in the event that you default on making payments in accordance with the agreement, your Insolvency Practitioner is obliged to petition for your bankruptcy. So, if your debts are serious enough to go the IVA route, you need to follow it through properly!
An IVA usually lasts for between two and five years, depending on how long it takes you to pay off your creditors. You will be required to account for your spending and anytime you get a pay rise, the extra money has to go towards the debts. If you have equity in your home or an endowment policy then you may be required to use these to pay off part of your debts. Your Insolvency Practitioner will help you to sort out what your assets and liabilities are, how much you need to live on and how you propose to deal with your creditors. He’ll then help you to apply to the court for an Interim Order, which puts an immediate stop to creditors taking legal action against you.
The Insolvency Practitioner then contacts all your creditors and outlines your payment proposals. This can either be done in writing or he can call a meeting of your creditors — it depends entirely on the extent of your debts and the number of creditors involved. Provided 75% (in value) of creditors agree to it (and they usually will since it means they’ll at least get some money out of you) the IVA can then be implemented.
The fees you pay to the Insolvency Practioner are normally taken out of the monthly payment you make to your creditors. Many people have concerns with the way IVAs are being promoted to those in debt, particularly by the new breed of IVA firms that advertise heavily on TV and in the press. As these firms generate large fees from IVAs, there is obviously an incentive for them to recommend this solution when it may not be in the debtor’s best interest (people on benefits being one example).
Note that there are moves to make the IVA process simpler, especially for those people who owe less than £30,000. However, the current system will be with us for a little while yet.
Source: The Insolvency Service