What is an IVA?
If your debts are quite long-outstanding and appear to have grown beyond your control, your creditors will be increasing the strength of their demands for repayment and will sooner or later look to the county court for settlement of the matter. As a final attempt to stave off a County Court Judgement or a Declaration of Bankruptcy (both of which will leave you with even more difficulties in obtaining credit in the future), you have an alternative course of action by making an Individual Voluntary Arrangement, or IVA.
Because it is made through a formal undertaking with the county court, an IVA may have greater appeal to your creditors than, for example, a debt management plan, although it will mean your having to pay off an agreed proportion of your debts over a shorter period of time. Normally, this will involve relatively large monthly repayments over a 3 or 5-year period, at the end of which, the remainder of your debt is written off.
The total sum paid under an IVA is usually calculated with reference to the amount your creditors would be able to recover if you were to declare bankruptcy. Sometimes, creditors are persuaded to accept an IVA if a significant lump sum is included in the offer at the outset, rather than ongoing monthly repayments. Often, the arrangement will include a combination of both lump sum and monthly payments. From this brief description, it may be clear that an IVA is not going to suit everyone struggling with a debt problem. Creditors are unlikely to agree to the arrangement unless they can be convinced that you have a significant disposable income to make large repayments each month or unless you have a sizeable lump sum or other assets with which to start the ball rolling.
Costs
Because of the formal nature of an IVA, it has to be drawn up by an insolvency practitioner (IP), who can be a solicitor, an accountant or a specialist practice authorised to provide just this sort of service. And it is at this first step of choosing an IP that you should exercise great care. Although there is not usually an initial fee for the services of an IP, his costs will be added to the total amount included in the IVA. These costs can be high – several thousands of pounds, for example, even for a quite straight forward IVA. Make absolutely sure you know how much of any IVA you agree to covers the IP’s costs and how much is actually used to pay off your creditors.
Once you’ve instructed an IP, he or she will take the following steps:usually, he or she will file an application to the county court for an “interim order”. This will prevent creditors starting bankruptcy proceedings against you, pending negotiation of an IVA:
- The IP then drafts and send to your creditors an IVA proposal and convenes a “creditors meeting” (giving a minimum 14 days notice)
- When you also receive a copy of this notice, check that the IP has included all your creditors, because any that have not received the notice cannot be bound by the contents of any IVA and remain free to pursue their debt separately (i.e. through the county court)
- At the meeting, all the creditors decide whether to accept the IVA. Creditors do not have to attend the meeting to cast their vote, but can send it to the IP. The IVA is agreed if at least 75% of your creditors “by value” (that is the creditor or creditors to whom you owe 75% of the debt) agree to the proposals. If 75% by value agree, the remaining creditors are also bound by its terms
- Before reaching any agreement, creditors can take this opportunity to try to negotiate terms more favourable to themselves, so they could attempt to get you to pay more each month or sell assets you don’t want to part with in order to make a lump sum payment. They might ask you to repay more of the debt by requesting payments over a longer period of time.
When the IVA has been agreed, your IP will be responsible for its management, ensuring for example that you make the payments you agreed to. If a creditor who was not originally included emerges after an IVA is in motion, that creditor can claim the same proportion of repaid debt as if they had been included in the IVA from the beginning.In summary, therefore, an individual voluntary arrangement, or IVA, is:a formal agreement, filed with the county court, under the terms of which you agree to make regular payments against a debt:
- The term of an IVA is generally 3-5 years
- At the end of the agreed term, any remaining debt is written off
- You will need to employ the services of an Insolvency Practitioner (IP) to draw up and manage your IVA.
