What is an Individual Voluntary Arrangement (IVA)?
Posted on 16th November 2021 at 13:27
It is a common misconception that bankruptcy is the inevitable consequence of being unable to pay your bills. While it certainly is a possibility, it should be considered a last resort. Before that point is reached, there are other options to explore, which can allow you to avoid bankruptcy and all of its repercussions, and instead, work toward a debt-free, financially managed future.
One such option is an Individual Voluntary Arrangement (IVA). An IVA is a way for you to deal with your debts while also avoiding bankruptcy. It is essentially a compromise designed to result in the full and final settlement of your financial issues. When successfully negotiated, an IVA becomes a formal agreement between you and your creditors, detailing how you will clear your debts, and on what timescale your creditors can expect payments.
How does an IVA work?
Firstly, your IVA must be drawn up by a licensed professional who is appropriately qualified. An Insolvency Practitioner is the ideal option here, as they can provide detailed but jargon-free advice and guidance throughout what is a very stressful time. The Insolvency Practitioner will not only take the lead in drawing up the IVA proposal, but they will also negotiate its terms between you and your creditors until an agreement is reached. There are several factors involved in the use of an IVA:
A minimum of 75% of your creditors must agree to the terms proposed in order for the IVA to be enacted and enforced.
The IVA can set out a schedule of regular payments made through surplus monthly income, or determine the timing of a full and final, single payment.
Liabilities are capped at the date the IVA is approved and enacted.
For the duration of the IVA, its details will be listed on the Insolvency Register. This is a public record operated by the Insolvency Service, and covers England and Wales.
For the duration of the IVA term, the Insolvency Practitioner you have instructed will act as ‘Supervisor.’ This means they will be responsible for ensuring that all parties abide by the terms and conditions of the agreement. All payments resulting from the IVA are made to the Supervisor, or Insolvency Practitioner, who then distributes the funds to your creditors as necessary, taking their fee beforehand. This means that the fee for the Insolvency Practitioner will be factored into the debts being negotiated and paid off as part of the IVA.
Can anyone set up an IVA to deal with debt?
In practice, no, not everyone can set up an Individual Voluntary Arrangement because there are specific evaluation criteria used by creditors and Insolvency Practitioners to determine the viability of an IVA as a resolution option. Firstly, as a general rule, you will be expected to have a minimum of three creditors, a minimum of £15,000 in unsecured debt, and be able to afford monthly repayments of £200. These are not legal criteria, though, and the specifics of your situation may influence these benchmarks.
Your creditors are likely to then evaluate your proposed IVA against more detailed criteria.
Is the return promised by the IVA greater than that which your creditors would receive from your bankruptcy?
Are you a resident of England, Northern Ireland, or Wales?
Do the proposed repayments over the duration of the IVA amount to the minimum creditor dividend – otherwise known as the agreed percentage of the total debt to be repaid?
The minimum creditor dividend is usually around 15 % of the debt amount. This is also negotiable, to a certain degree, however. The agreed percentage is often influenced by circumstantial factors, including the timeframe in which creditors can realistically expect to receive payment, the size of the total debt, and the level of return to creditors that would be likely in bankruptcy.
Important points to remember
In general terms, Individual Voluntary Agreements usually have a duration of between five and six years. This is because debts have accumulated due to your inability to pay, so a lengthy schedule of repayment is required to ensure the best possible chance of the debts being cleared. This means that any financial lump sums that come your way during the life of the IVA will be swallowed up as debt repayments. For example, if you receive an inheritance, or a profit from the sale of property, then your creditors will be entitled to it, and this will remain the case until all debts are cleared.
Once your IVA has ended and your final payment has been made, you will receive a certificate of completion from your Insolvency Practitioner, who will also update your creditors and the Insolvency Register – ensuring that your details are removed. It is essential that you also notify the necessary credit reference agencies, because the resolution of your IVA will lead to an improvement in your credit score.
How can Smith & Barnes Insolvency Practitioners help?
At Smith & Barnes, our team of licensed Insolvency Practitioners brings a wealth of experience to every difficult financial situation. Our personalised approach means we can deliver a service that is fast, professional, and affordably priced. That means you can find the advice and guidance you need, a plan to resolve your financial problems, and an immediate reduction in stress and anxiety, all in one phone call.
When debt becomes a seemingly insurmountable, unending problem, the future can seem very bleak. You may have concerns about your career trajectory as an entrepreneur, or worries about whether the spectre of this difficult experience will follow you into the next phase of your life, continuing its negative impact. At Smith & Barnes, our goal is to help you resolve your financial difficulties in such a way that your creditors needs are met while your future remains bright and filled with possibility. This is the basic principle that informs our low cost, high quality Insolvency Practitioner service.
Contact us today for a free consultation on your situation and find out how we can help you resolve your financial difficulties in a positive way.
Share this post: