What is an Individual Voluntary Arrangement (IVA)?
Is a formal agreement between you and your creditors, where you formally agree with your creditors to make payments towards your total debt. Due to its formal nature an IVA has to be set up by an Insolvency Practitioner. The agreement is legally binding between you and all your creditors and runs for 1, 3 or 5 years. Monthly payments are based on an affordable disposable income and subject to your circumstances the arrangement can write off a percentage of your debts. Once set up, all interest and other debt charges are frozen and creditors are prohibited from taking any further action against you.
Positives of an IVA
- An IVA lasts for a fixed period of time, normally 5 years. IVA’s are not publicised in Newspapers but details can be found on The Insolvency Register, which is publicly available.
- Once an IVA is in place, your creditors are not allowed to take further legal action against you as long as you stick to the terms of the arrangement. All interest and further charges stop, as does all direct contact from your creditors. All contact then is via your Insolvency Practitioner.
- Regardless of your professional position, you can continue to work with an IVA in place.(subject to your individual “Employment Contract” & Conditions)
- A part of your overall debt can be written off at the end of the arrangement
- If you are running a business you can continue to operate and also act as a Director.
Negatives of an IVA
- An IVA will damage your credit rating and you will not be able to use your credit/store cards. However you can still use prepaid cards.
- If you have any equity in your property or any other significant asset of value, you may be required to release some, or all of this, as part of the IVA agreement.
- Failure to keep up your IVA monthly payments will mean you will be bankrupted. A high proportion of IVA’s are not sustained and end in failure and bankruptcy.
- You will pay back more than you will in a bankruptcy.
- Many people applying for an IVA will not succeed, yet you will have already funded the investigation and application. You will then need 75% of the total debt value voting in favour to begin (or put another way, just 1 or 2 creditors holding 26% of the total debt can stop the proposal).All your creditors must be involved. Any creditors with a personal guarantee from you would normally vote against.
- The Insolvency Practitioner has to be paid to set the arrangement up and then monthly for the period (normally out of money that would otherwise go to the creditors.)
- An IVA will cost substantially more than a Bankruptcy and generally lasts a lot longer.
What Is Insolvency?
Put simply, Insolvency means you cannot pay your debts when they fall due and/or you owe more than you own. If that applies to you, you probably also are experiencing creditor pressure including legal threats or action. You should take advice, (which should be free) to understand your options and plan accordingly.
An Iva or Bankruptcy
Which is the best option for you? An IVA (Individual Voluntary Arrangement) or a Bankruptcy?
When dealing with “Individual” insolvency cases, an IVA or Bankruptcy should always be considered, along with other processes that might be appropriate, depending on particular circumstances. For simplicity and ease of comparison, both legal processes are examined here.
A Debt Relief Order (Dro) was introduced in April 2009 especially for people with total debts, which they can’t pay, of less than £15,000.00. To apply, your total assets, excluding a car, cannot exceed £300.00 and your disposable income, after living expenses, must be less than £50.00 a month. The filing fee is currently less than £100.00 and applicants must have been living/working in England and Wales for the last 3 years, not used a DRO within the last 6 years and not be involved in any other formal insolvency processes at the time of application.
Other Alternative Processes.
Debt Management or Debt Consolidation schemes have a place, but tend to be very expensive, with high set up costs and a higher percentage of the monthly payments going to the management company and not the creditors. These schemes are not legally binding and any creditor can take action at any time against you.
Informal Arrangements are worth considering, where a professional negotiates on your behalf to set up payment plans, payment holidays and settlements. Again these are informal arrangements and not legally binding. (unless willingly agreed by both parties)
Where to Go for Help and Advice.
There are 100′s of websites/companies offering debt advice and solutions-just choose wisely. The following reputable organisations provide free advice and are worth contacting.
Phoenix & Co offer free, independent advice to local South West businesses. Licensed Recovery & Insolvency Practitioners. Telephone 01392 314092. Web is www.phoenixing.co.uk
Business Debtline is a charity that provides free telephone help for the self-employed and small businesses facing financial difficulties. Helpline on 0800 197 6026. Web is www.bdl.org.uk
Citizens Advice (CAB) is a charity that offers free, independent and confidential advice from more than 700 offices throughout the UK. Helpline on 0207 833 2181. Web is www.adviceguide.org.uk
Consumer Credit Counselling Service (CCCS) is a charity providing free counselling and money-management help to families and individuals. Helpline on 0800 138 1111. Web is www.cccs.co.uk
The Insolvency Service is a Government agency that covers all insolvency matters and provides excellent advice on the telephone 0845 602 9848, or via their website at www.insolvency.gov.uk
National Debtline offers free, independent and confidential advice over the telephone. Helpline is 0808 808 4000. Web is www.nationaldebtline.co.uk