Individual Voluntary Arrangements (IVAs)

The term IVA stands for Individual Voluntary Arrangement. This particular debt management solution has come into focus in recent years, primarily because it offers many of the advantages of bankruptcy with few of the associated disadvantages. With this solution you could see all your debts written off completely in a short period of time. So, will it work for you?

What is an IVA?

An Individual Voluntary Arrangement can be used as a debt solution by both individuals and by certain types of business (i.e. sole traders or partnerships). This debt management solution is most closely related to a bankruptcy proceeding in that it works to write off your debts within a specific period of time and it is a legally binding agreement. Let’s take a look at how an IVA works:

• You need the help of a licensed Insolvency Practitioner (IP) to take out an IVA and you cannot set one up on your own. Your representative here will work with you to assess your debt situation and to work out how much you can actually repay to eradicate your debts. During this process you may also apply for a court to put a halt to creditor action against you whilst you prepare your repayment proposal.
• Your IP then calls a meeting of your creditors where he/she presents your proposal to them. You need creditors to vote in favour of your proposal at a 75% rate of the debts that you owe to be able to set up the IVA. Creditors can attend the meeting and vote in person, give a proxy vote or not vote at all. The IVA can be set up irrespective of non-voters wishes so long as you get your percentage agreement and the IVA will then become legally binding for all creditors. Bear in mind that many creditors will accept an IVA on the basis that they will usually get more money back than if you had to declare yourself bankrupt.
• Your IP will then formally set up your IVA and arrange payment to creditors. This can take the form of regular monthly payments and/or lump sum payments depending on your proposal. Once your IVA is finished (usually after 5 years) any remaining debts that you owe will be written off.

What are the benefits to you?

An IVA has a lot of benefits and may well be the best debt eradication solution for a lot of people who have financial problems. For example, an IVA can:

• Allow you to get rid of your debts within a specific period of time via a schedule that is affordable. With this kind of solution you will know that you will be debt free once the IVA is done.
• Help you write off up to 75% of your debts.
• Keep creditors off your back as an IVA is a legally binding agreement the terms of which your creditors have to agree to.
• Ensure that you will not have to use your assets (i.e. your home, car etc) towards debt repayment. The payments that you make here can be based on a monthly repayment or a one-off payment.
• Make sure that you can still carry on your everyday life. Declaring yourself bankrupt, for example, puts restrictions on what you can do for a living, the types of professional positions that you can hold, the kind of bank account you can have and how you can get future credit. These issues won’t happen with an IVA.
• Allow you to still run your business in certain circumstances. If you are a sole trader or a partner then you could, for example, use an IVA to help you manage your debts if you believe that the business will be a going concern in the future.
• Be kept confidential so that nobody need know that you are going through this process.

Are there any drawbacks to an IVA?

All debt management solutions come with some drawbacks. Your aim here should be to compare these drawbacks as well the benefits to decide on your best solution. Issues that you may want to think about here include:

• You are committed to your IVA for the period that it lasts. If you default on your commitments here then you could be forced into bankruptcy. This could mean that you are making debt repayments for the next 5 years.
• If your income improves while you have an IVA in place then you will have to increase your payments to the plan. This will be monitored by your IP.
• Your creditors can ask for some of your assets to be used in your IVA repayment such as the equity that you have built up in your home before they agree to your proposal.
• You will need to have enough money free from your monthly budget to make your payment -- usually around £200 per month.
• You may find it hard to raise additional finance during your IVA. You are unlikely to be approved for unsecured loans or overdrafts, for example, and your IVA status will go on to your credit record.

Do I qualify to take out an IVA?

Not everyone will qualify to apply for an IVA even if it is their chosen debt eradication solution. In general terms this may be a good solution for you to use to write off your debts if you:

• Owe over £15,000 to a minimum of 3 separate creditors.
• Can afford to pay back at least £200 a month, have a suitable large lump sum to offer and/or the willingness to use assets towards debt repayment.
• In a full and final IVA up to 40% of the debts can be written off, subject to a lump sum being made available to the creditors.

The best way to find out if an IVA is the right option for you is to talk to one of our debt help advisors to assess your situation. For a free no-obligation chat with a professional money counsellor, telephone 0800 970 4835, or complete the details on our contact us page. We can help you work out the best way of getting out of the red and back into the black!