An Individual Voluntary Arrangement (IVA) is a way to reduce debt without the harmful effects of bankruptcy.
An Individual Voluntary Arrangement (IVA) is a way to reduce debt without the harmful effects of bankruptcy. The 1986 Insolvency Act established the Government IVA as a method to ease people's debt burdens. IVAs are frequently used by those with debt over £15,000 for whom other forms of debt management are ineffective. Interest accumulation is frozen, debtors make affordable monthly payments, and lenders write off up to 75% of debt, all in five years.
Basics of an IVA
Government IVAs are legally-binding arrangements between lenders and borrowers. They allow lenders to get some of the money owed to them, though lenders must often reduce the total amount. Most of the time, interest is frozen, the total debt is reduced, and the debtor receives legal protection from lenders so long as he or she abides by the terms of the IVA. Technically, there is no minimum or maximum that makes someone eligible for an IVA, but it's most used by those with at least £15,000 in unsecured debt and who have £150 a month to repay it. An insolvency practitioner reviews debtors' financials and determines how much, realistically, they can pay per month. The practitioner will then help get the IVA proposal approved by creditors.
Benefits to Debtors
At the end of the IVA, as much as 70% of the total debt is written off. This means debtors basically have to pay less to get out of debt. Even better, debtors don't accrue interest during the IVA period. They're protected from lenders taking legal action against them and they can still have a current account. IVAs are not made public as bankruptcies are; they don't affect one's professional life. Finally, debtors are involved in determining which assets will be made available to lenders.
Risks to Debtors
Whilst some assets can be excluded during the process, one's assets will still be at risk. Lenders generally focus on savings or other releasable assets. They usually leave homes untouched. Since IVAs are listed on credit history, debtors will not be able to get further credit during the IVA term. After the term has ended, debtors may still find it difficult to get credit for several years. Since an IVA is legally-binding, if the debtor doesn't fully disclose assets or fails to follow the terms of the IVA, the IVA practitioner or any of the creditors may petition for bankruptcy.
Steps in an IVA
An authorised insolvency practitioner acts on the behalf of the debtor. If needed, the IVA practitioner will help apply for an interim order that will prevent lenders from proceeding with a bankruptcy petition. It also bars them from taking action against debtors unless approved by the court. The IVA practitioner sends an IVA proposal to the court, advising whether a meeting of lenders should be called. If so, the meeting date and details will be sent to all creditors. Only those creditors who received notice of the meeting are bound by it, so it's essential that the IVA practitioner have all creditors' information. At that meeting, creditors vote on the proposal. If 75% vote to accept, the proposal is approved. It's then binding on all creditors notified of the meeting. This starts the five-year IVA term during which the IVA practitioner supervises. Should the debtor's financial situation change, the creditors may request the agreement be reviewed.
A Government IVA allows debtors to reduce their debt without having to declare bankruptcy, but is still legally-binding and does not wipe the slate clean. It will remain on credit history and impact the debtor's life for many years. Seeking a Government IVA is not a decision to be made lightly. Debtors should seek professional advice before proceeding.
An Individual Voluntary Arrangement (IVA) is a way to reduce debt without the harmful effects of bankruptcy.
An Individual Voluntary Arrangement (IVA) is a way to reduce debt without the harmful effects of bankruptcy. The 1986 Insolvency Act established the Government IVA as a method to ease people's debt burdens. IVAs are frequently used by those with debt over £15,000 for whom other forms of debt management are ineffective. Interest accumulation is frozen, debtors make affordable monthly payments, and lenders write off up to 75% of debt, all in five years.
Basics of an IVA
Government IVAs are legally-binding arrangements between lenders and borrowers. They allow lenders to get some of the money owed to them, though lenders must often reduce the total amount. Most of the time, interest is frozen, the total debt is reduced, and the debtor receives legal protection from lenders so long as he or she abides by the terms of the IVA. Technically, there is no minimum or maximum that makes someone eligible for an IVA, but it's most used by those with at least £15,000 in unsecured debt and who have £150 a month to repay it. An insolvency practitioner reviews debtors' financials and determines how much, realistically, they can pay per month. The practitioner will then help get the IVA proposal approved by creditors.
Benefits to Debtors
At the end of the IVA, as much as 70% of the total debt is written off. This means debtors basically have to pay less to get out of debt. Even better, debtors don't accrue interest during the IVA period. They're protected from lenders taking legal action against them and they can still have a current account. IVAs are not made public as bankruptcies are; they don't affect one's professional life. Finally, debtors are involved in determining which assets will be made available to lenders.
Risks to Debtors
Whilst some assets can be excluded during the process, one's assets will still be at risk. Lenders generally focus on savings or other releasable assets. They usually leave homes untouched. Since IVAs are listed on credit history, debtors will not be able to get further credit during the IVA term. After the term has ended, debtors may still find it difficult to get credit for several years. Since an IVA is legally-binding, if the debtor doesn't fully disclose assets or fails to follow the terms of the IVA, the IVA practitioner or any of the creditors may petition for bankruptcy.
Steps in an IVA
An authorised insolvency practitioner acts on the behalf of the debtor. If needed, the IVA practitioner will help apply for an interim order that will prevent lenders from proceeding with a bankruptcy petition. It also bars them from taking action against debtors unless approved by the court. The IVA practitioner sends an IVA proposal to the court, advising whether a meeting of lenders should be called. If so, the meeting date and details will be sent to all creditors. Only those creditors who received notice of the meeting are bound by it, so it's essential that the IVA practitioner have all creditors' information. At that meeting, creditors vote on the proposal. If 75% vote to accept, the proposal is approved. It's then binding on all creditors notified of the meeting. This starts the five-year IVA term during which the IVA practitioner supervises. Should the debtor's financial situation change, the creditors may request the agreement be reviewed.
A Government IVA allows debtors to reduce their debt without having to declare bankruptcy, but is still legally-binding and does not wipe the slate clean. It will remain on credit history and impact the debtor's life for many years. Seeking a Government IVA is not a decision to be made lightly. Debtors should seek professional advice before proceeding.