During the preparatory stage of an Individual Voluntary Arrangement (IVA), the debtor will be instructed by the nominated insolvency practitioner to stop paying money to their creditors.
This is normal procedure.
The are two main reasons for this approach.
- Firstly, it helps the debtor to immediately arrest their deteriorating debt problem. In most circumstances, the debtors financial problems are worsening each month due to their unaffordable repayments. The Insolvency Practitioner will not want the situation to worsen any further, and will effectively instruct the debtor to stop paying their debts directly to the creditors.
- Secondly, it avoids the possibility of one creditor being preferred to another. The Insolvency Practitioner has to be seen to be acting fairly to all parties concerned. If one creditor was to continue receiving repayments towards a debt, then all the other creditors could accuse the Insolvency Practitioner of preferring that creditor over them.
Normally, the Insolvency Practitioner will have calculated how much the debtor can reasonably afford to pay into their proposed IVA, based on the debtors personal circumstances, and will then make arrangements to receive these new payments on behalf of the creditors, each month until the Individual Voluntary Arrangement (IVA) has been accepted. Once the Individual Voluntary Arrangement (IVA) has been accepted at the Creditors Meeting, the money paid to the insolvency practitioner before the Individual Voluntary Arrangement (IVA) was agreed, will be passed across to the Individual Voluntary Arrangement (IVA) fund.
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