What is an IVA?

A better option for many individuals contemplating filing for bankruptcy might be an IVA. An IVA (Individual Voluntary Arrangement), very simply, is a legally binding agreement between a debtor and creditor(s) on what percentages of payment will be repaid towards a debt over a certain amount of time. Both sides benefit: debtors who have fallen into insolvency do not have to resort to bankruptcy and can keep their debt problems confidential, and creditors receive a higher percentage of funds during the five-year repayment than they would if the debtor in question filed for bankruptcy. It is most often used by those who have amassed a large amount of debt, usually more than £15,000.

How do I enter into an IVA agreement?

Agreements usually fall under a five-year repayment plan and consist of one payment, even though there may be multiple creditors involved. Agreements must be set up by a professional licenced in handling IVA agreements, an Insolvency Practitioner (IP). If you’re thinking of setting up an IVA, make sure to meet with the IVA professional and go over the outlines of the IVA Proposal. Following an examination of your financial situation and income, a plan will be set up by the IP that allows for the maximum single amount that you can afford to pay per month towards the debt, taking into account your assets, liabilities, income, tax and living expenses. The reduced payments will allow you to be fully settled with your debt after the 60-month limit of the IVA is reached.

After a payment plan is set up by the IVA professional, application may be made to the court for an Interim Order if any legal action has been taken regarding the debt; after the Order is granted, no creditors can initiate legal proceedings against any previous debt. At a court hearing, the creditors will vote whether to accept the IVA. Creditors can turn in a vote by fax or post and those that do not attend or vote remotely are considered to be giving a ‘yes’ vote, and 75% of creditors involved must consent to the agreement before it goes into effect. Modifications can be made to the proposal only with the debtor’s consent.

What happens once the IVA is in place?

Whilst the IVA is in effect, your situation will be regularly looked at by the supervising Insolvency Practitioner during the course of the payment period to see if your financial circumstances have changed. If they have, you will be expected to pay either more or less on your repayment schedule. Payments are usually made to the IP, who then forwards the funds to the correct creditors. The IP’s fees are taken out of the payments to the creditors, resulting in less money for them—this is taken into account in voting during the court hearing.

Keeping up all payments can result in a fresh financial start in a few years. By falling into arrears, a debtor risks falling into bankruptcy. Usually, the pre-agreement process of deducting living expenses from income works to prevent that from happening. By working with your IP, you should be able to set the payments at a reasonable rate that enables you to make the payments and get that fresh, debt-free start.