Individual Voluntary Arrangements or IVAs were created by the Insolvency Act 1986. They are an alternative procedure to bankruptcy for insolvent individuals. IVAs are only available to residents of England, Wales and Northern Ireland as Scotland has different insolvency laws.
An IVA is a formal agreement between you and the people you owe money to. An IVA proposal sets out how you are going to repay the creditor, usually over a period of five years. To enter an IVA you need an insolvency practitioner. They will prepare, negotiate and administer an arrangement for you to voluntarily repay your creditors. This can be done by using your spare income, a lump sum or other assets that you own. An IVA proposal should present creditors with a favourable alternative than bringing bankruptcy proceeding against a debtor.
Who is an IVA available to?
An IVA is available to all individuals, Sole Traders and Partners who are experiencing creditor pressure. It is used particularly by those who own their own property, or an asset and wish to avoid the possibility of losing it in the event they were made bankrupt.
If you have surplus income after meeting your essential household and personal expenses or have assets that can be used to pay your creditors or have access to a lump sum. For example from a relative, you may then consider entering into an Individual Voluntary Arrangement (IVA). If you chose an IVA this will protect you from recovery action that your unsecured creditors may take, and will usually involve your creditors writing off part of what you owe them. A proposal for an IVA will only be approved where enough creditors vote in favour.
How is an IVA accepted?
An IVA can only be accepted by a 75% majority vote of your creditors agreeing to the proposal, after which it becomes legally binding for all creditors of that individual. If accepted all payments will be consolidated into one significantly reduced monthly payment and creditors must freeze all charges and interest on the outstanding debts. To qualify for an IVA you will need a stable, reliable income.
The benefits of an IVA?
- An IVA is a flexible solution that can be tailored to your situation.
- With an IVA you normally only need to make a single payment each month.
- Creditors cannot add on interest to their dent once the IVA starts.
- The IVA runs for a fixed term – generally no longer than 5 years.
- At the end of the agreed period for the IVA, your debts are gone.
- In an IVA you may have to release equity in a property but you don’t normally need to sell it.
The negatives of an IVA?
- Your IVA is entered on a public register.
- If there is some equity (value) in your home after taking account of the mortgage(s) on it, you will probably have to pay for your share, usually in the fifth year of your IVA, by remortgaging the property. If you can’t get a re-mortgage, you may have to continue making monthly or quarterly payments from your income, for up to another year.
- If you circumstances change, and your practitioner can’t get creditors to accepted amended terms, the IVA is likely to fail. You will then still owe your creditors the full amount of what you owed them at the start, less whatever has been paid to them under your IVA.
- If your IVA fails, you may be made bankrupt.
- An IVA will affect your ability to obtain credit and will remain on your credit file for 6 years.
- You will not be allowed to borrow additional credit during the term of the IVA.
For more information about an IVA is, or you would like some advice about an IVA, please call one of our advisors on our expert IVA advise helpline 0800 121 62 48 63 or apply complete the form below.
