IVA
What Is An IVA (Individual Voluntary Arrangement)
An Individual Voluntary Arrangement, or IVA as it is also referred to, is a formal repayment agreement between a debtor (a person owing money) and their creditors (the people who are owed money).
The Individual Voluntary Arrangement (IVA) is a legally binding agreement, and allows a debtor to make reduced monthly payments to their unsecured debts for the duration of the Individual Voluntary Arrangement (IVA), which is normally 5 years.
An Individual Voluntary Arrangement (IVA) is available as an alternative to Bankruptcy for people whose occupation’s would be adversely affected by declaring themselves insolvent, for example police officers, armed services personnel, accountants, lawyers and other qualified professions.
Unlike Bankruptcy, an Individual Voluntary Arrangement (IVA) is essentially a private agreement, and is not published in the press.
Individual Voluntary Arrangements (IVAs) are also available for the self employed.
During the Individual Voluntary Arrangement (IVA), the creditors are legally bound to freeze the interest on any outstanding debts and to cease adding late payment charges to the debtor’s account(s).
During the Individual Voluntary Arrangement (IVA), the creditors are forbidden from contacting the debtor in relation to the outstanding debts, whether by mail, telephone, fax or email, as any correspondence must be passed through the appointed Insolvency Practitioner’s office under the terms of the Individual Voluntary Arrangement (IVA).
Once the Individual Voluntary Arrangement (IVA) has been successfully completed any outstanding balances must be written off by the creditors, leaving the debtor debt free.
Not everybody that wants to apply for an Individual Voluntary Arrangement(IVA) will find they qualify for an Individual Voluntary Arrangement(IVA), as there are minimum IVA requirements that need to be met, before an Individual Voluntary Arrangement (IVA) will be considered as a viable debt solution.
Many people confuse an Individual Voluntary Arrangement (IVA) with a Debt Management Programme (DMP), which is an informal agreement between a debtor and his creditors.
Due to the informal nature of a Debt Management Programme, there are significant differences from an Individual Voluntary Arrangement (IVA). To learn about the main differences between an Individual Voluntary Arrangement (IVA) and a Debt Management Programme, click here, IVA vs Debt Management Programmes.
Individual Voluntary Arrangements (IVAs) are usually constructed around the principle of a monthly payment plan, that lasts for 5 years.
However, there is also another structure that an Individual Voluntary Arrangement (IVA) can take which is known as a Full and Final Settlement IVA.
N.B: This type of Individual Voluntary Arrangement (IVA) is less common than the traditional 5 years Individual Voluntary Arrangement (IVA), and is used to assist debtors who are unable to afford an IVA regular monthly repayments, but who instead have access to a lump sum.
The lump sum can be generated by the sale of assets owed by the debtor, or provided by a 3rd party and is offered to creditors through a Full and Final Settlement IVA. The Full and Final Settlement IVA carries all the same benefits for the debtor as the traditional 5 years Individual Voluntary Arrangement (IVA), ensuring all creditors are legally bound to the settlement once an agreement has been reached as normal at an IVA creditors meeting.
The size of the monthly repayments to the Individual Voluntary Arrangement (IVA) are calculated with the help of the debtor providing the relevant documentation, and are based on the affordability to the debtor throughout the Individual Voluntary Arrangement (IVA).
The Pros and Cons of an IVA are well documented throughout the site.
Click this link to read further information on the ‘Pros’ or advantages of an IVA.
Click this link to read further information on the ‘Cons’ or disadvantages of an IVA.
When a debtor has decided that an Individual Voluntary Arrangement (IVA) is the right way forward to their debt problem, and they have established that their circumstances qualify them for an IVA, they will need to appoint a licensed Insolvency Practitioner, also referred to as an I.P. This is because only an Insolvency Practitioner (IP) is able to present an Individual Voluntary Arrangement (IVA) application to their creditors.
During this period, the Insolvency Practitioner (IP) takes on the role of the IVA Nominee.
The Individual Voluntary Arrangement (IVA) Proposal
The application paperwork for an Individual Voluntary Arrangement (IVA) is known as an Individual Voluntary Arrangement (IVA) Proposal, and is prepared by a IVA Drafter
During the Individual Voluntary Arrangement (IVA) proposal preparations, care is taken to account for the all debtor’s assets, including any equity in property they may have, endowment policies or saving plans etc.
The size of the monthly IVA payment will be calculated by completing a financial profile of the debtor’s financial affairs. This profile will include a full analysis of the debtor’s income, their normal and reasonable living expenses, including their priority payments such as rent, mortgage, vehicle finance, council tax, gas and electric bills, and by taking into account all the debtors assets and liabilities.
If the debtor owns equity in a property, or an endowment policy, it may be required to be released to form part of the Individual Voluntary Arrangement’s (IVA’s) offer to the creditors. Click here for further information about how equity in a home may be affected.
Such lengthy efforts are undertaken during the preparation of the Individual Voluntary Arrangement (IVA) to reduce the risk of payment problems during an IVA, which may lead to a debtor falling into arrears with their Individual Voluntary Arrangement (IVA) repayments, because failure to complete an Individual Voluntary Arrangement (IVA) could cause the debtor some serious financial consequences.
When the Insolvency Practitioner (IP) is satisfied the Individual Voluntary Arrangement (IVA) Proposal is completed, it will be sent to the debtor to read through and confirm the details within it are correct.
Once the debtor is satisfied with the Individual Voluntary Arrangement (IVA) Proposal’s content and accuracy they are required to sign and return it to the Insolvency Practitioner.
This process will normally be completed within a short time frame, with an initial set up time of around 2-4 weeks, but it could take longer depending on the response time of the debtor, and the workload of the Insolvency Practitioner (IP). The Insolvency Practitioner (IP) will then lodge the Individual Voluntary Arrangement (IVA) Proposal with the Court, and inform all the debtor’s creditors of the debtor’s intention to propose an Individual Voluntary Arrangement (IVA).
In some circumstances, legal action may well be undertaken by a creditor against a debtor who is proposing an Individual Voluntary Arrangement (IVA). In such cases, and at the sole discretion of the appointed Insolvency Practitioner (IP), it is possible to apply for an Interim Order. An Interim Order will protect the debtor from any further Court action being taken until the Individual Voluntary Arrangement (IVA) application process is completed and proposed to the creditors.
The next stage of the Individual Voluntary Arrangement (IVA) process is when the Insolvency Practitioner (IP) convenes a Creditors Meeting. The creditors must be given a minimum of 17 days notice of the Creditors Meeting, and it is during the Creditors Meeting that creditors will be asked to vote on the acceptance of the Individual Voluntary Arrangement (IVA) Proposal.
The Insolvency Practitioner (IP) will normally act as the chairperson for the Creditors Meeting, and whilst in the role of chairperson, they are required to ensure that the Individual Voluntary Arrangement (IVA) proposal being presented, represents the most fair and realistic offer available to all parties, giving the Individual Voluntary Arrangement (IVA) Proposal the strongest chance of being accepted by creditors.
There is no legal requirement for the debtor to be present at the Creditors Meeting, but they will be requested to make themselves available via a telephone whilst the meeting is being held.
The Individual Voluntary Arrangement (IVA) Voting Process
The Individual Voluntary Arrangement (IVA) will need to be agreed by the creditors at the Creditors Meeting, before it will become legally binding. There is a complicated voting procedure by which all Individual Voluntary Arrangements (IVAs) are either accepted or rejected by the creditors.
An Individual Voluntary Arrangement (IVA) can also be accepted with conditions attached. These conditions are called Creditors Modifications, and can range from incidental modifications, over how the Individual Voluntary Arrangement (IVA) will be managed over the 5 years by the Insolvency Practitioner (IP), through to a modification of the size of monthly repayments the debtor must contribute before the Individual Voluntary Arrangement (IVA) becomes acceptable to creditors.
If there are any modifications made to the Individual Voluntary Arrangement (IVA) Proposal at the Creditors meeting, the debtor will have the opportunity to accept or decline the changes, before the Individual Voluntary Arrangement (IVA) becomes legally binding.
For an Individual Voluntary Arrangement (IVA) to become legally binding, there must be in excess of 75% of the monetary value of votes cast, cast in favour of the Individual Voluntary Arrangement (IVA) being accepted by the creditors.
Once there is an acceptance of the Individual Voluntary Arrangement (IVA) Proposal by the creditors at the Creditors Meeting, the agreement becomes legally binding on all the creditors involved, whether they voted in favour or not. Equally, should a creditor decide to not vote at all, they will be bound by the decision of those creditors that do vote.
When the Individual Voluntary Arrangement (IVA) has been accepted by the creditors, it is recorded on the IVA register for the full duration of the Individual Voluntary Arrangement (IVA).
Supervising The Individual Voluntary Arrangement (IVA)
After a successful Creditors Meeting, and the Individual Voluntary Arrangement (IVA) has been accepted by the creditors, the Insolvency Practitioner (IP) adopts the role of Individual Voluntary Arrangement (IVA) Supervisor.
The Insolvency Practitioner takes the responsibility of managing the Individual Voluntary Arrangement (IVA), ensuring the Individual Voluntary Arrangement (IVA) terms are upheld by the debtor for the duration of the Individual Voluntary Arrangement (IVA).
Payments made into the Individual Voluntary Arrangement (IVA) by the debtor are monitored, and distributed to the creditors, by the Insolvency Practitioner (IP). The payments are distributed to the creditors on a pro-rata basis under the agreement’s conditions, until the Individual Voluntary Arrangement (IVA) finishes.
The onus of responsibility for the Individual Voluntary Arrangement (IVA) repayments lies with the debtor, and every effort ought to be made by the debtor to keep up the repayment schedule, as a failure to maintain repayments will lead to the failure of the Individual Voluntary Arrangement (IVA).
Should the debtor experience payment problems whilst in the Individual Voluntary Arrangement (IVA), the Insolvency Practitioner (IP) ought to be informed immediately, so that, if necessary, a Variation Meeting can be called, at which an amendment to the original Individual Voluntary Arrangement (IVA) can be sought from creditors.
Successful Completion Of The Individual Voluntary Arrangement (IVA)
After the Individual Voluntary Arrangement (IVA) has been successfully completed, the Insolvency Practitioner (IP) will notify all the creditors involved, and provide the debtor with a ‘Notice of Completion’.
As part of the Individual Voluntary Arrangement’s (IVA’s) terms, any debts that have not been repaid through the will Individual Voluntary Arrangement (IVA) must be written off by the creditors, and the debtor will be considered debt free, and without credit.
After the Individual Voluntary Arrangement (IVA), the debtor is free to begin rebuilding their credit worthiness, and by providing a copy of their ‘Notice of Completion’ certificate to the main credit agencies, Experian, Equifax and Call Credit, a note can be placed on their credit file, informing of the successful completion of their Individual Voluntary Arrangement (IVA).
At this stage the Individual Voluntary Arrangement (IVA) is removed from the IVA register.
The debtors credit file will carry the Individual Voluntary Arrangement (IVA) for the full duration of the Individual Voluntary Arrangement (IVA) and for another year after it has been completed, 6 years in all. After this time the debtor’s credit file will have no mention of the Individual Voluntary Arrangement (IVA), but gaining further credit may remain difficult for some time.
For further information about the IVA and Bankruptcy options click here: IVA vs Bankruptcy
For more information on IVA’s please use our IVA FAQ’s
To discuss your circumstances with a qualified IVA specialist call My IVA Adviser now on 0800 088 7503