Individual Voluntary Arrangement (IVA)

A debt management programme or debt consolidation loan (rather than an IVA) may be your first thought if you have debt problems. But they might not be the best way to get debt free.

One of our professional debt advisors will consider all routes to becoming debt free, including debt management, debt consolidation loans and an IVA.

When debts become overwhelming, it is common for bankruptcy to be seen as the last resort. However, there is an alternative which is far less restrictive but can be just as beneficial for the debtor... an Individual Voluntary Arrangement.

An IVA is an arrangement between the debtor and his/her creditors to repay a percentage of the debt over the life of the IVA, usually 5 years. This is to be done under the supervision of an insolvency practitioner. At the end of the IVA any outstanding debt is usually written off. With an IVA you can also keep your debt problems confidential (unlike with bankruptcy).

Whatever your debt problem - credit card debt or business debts - a professional debt counsellor will listen and give you free debt advice on debt consolidation loans, debt management, bankruptcy and an IVA.

For free debt advice on debt management, debt consolidation loans and the IVA, call us now in complete confidence

Making an Individual Voluntary Arrangement

• Normally only a debtor can initiate an IVA, but if the debtor is an undischarged bankrupt the trustee, Official Receiver or even the bankruptcy courts can do so.
• When hearing a debtor's petition, the court is required to consider whether an IVA might be more appropriate than bankruptcy.

IVAs, just like bankruptcy, are restrictive. It is not simply a matter of setting up an IVA, paying off a percentage of your debt and just walking away from the rest of what you owe. The following points affecting your current and future finances should be considered before taking this step:

Current Assets
Your home, savings and investments are at less risk than with bankruptcy - but they are still at risk.

Because creditors are being offered regular payments, they tend to be a little more flexible. The home and assets will still be at risk unless creditors decide to exclude them. However, creditors usually require savings and realisable assets (endowment policies, premium bonds, ISAs) to be encashed, leaving the home remaining relatively untouched (except for the possible release of some of the equity available at the end of the IVA).

Future Assets
Where you expect to receive an inheritance or already have assets, consideration should be given to any increase in value they may have whilst an IVA is in place. It may be possible to avoid losing out in such circumstances (such as amending a will) but not by transferring assets in a manner designed to evade your liability to your creditors.

Future Credit
IVAs do impair your credit worthiness. Whilst the arrangement is in place, credit will be something that you will have to pretty much live without. Once it has expired, you may still find it difficult to obtain new credit facilities.

Your Reputation
IVAs do not have the stigma that is attached to bankruptcy, so the impact on the reputation is minimal. It will be recorded and added to your credit file and will remain there for at least 6 years.

Costs
The fees of obtaining an IVA can be upwards of £2,500 plus VAT and expenses. Most insolvency practitioners will require that at least £750 is paid in advance of setting up the IVA, with the rest added to the arrangement.

Advantages of an IVA:
• There isn't the stigma or publicity that accompanies bankruptcy
• A business can continue to trade and generate income
• Via the insolvency practitioner, you are involved in the choice of assets made available to the creditors since the arrangement is designed to suit the debtor's situation. All this is providing the creditors are no worse off than if bankruptcy had taken place
• Administration costs should be lower than bankruptcy, enabling higher payments for creditors
• Creditors can still claim tax relief against bad debts just as with bankruptcy
• Creditors who vote against the IVA are still bound by it as long as 75% of the creditors in terms of the amount owed agree to it
• Creditors likely to recognise that they must accept less than all the money owed
• You do not suffer from the same restrictions as those imposed on bankrupts. For example, you can still be a company director, in the armed forces, hold public office, retain your professional status or trade under a business name
• You are able to operate a normal current account, as long as it does not have an overdraft facility

Disadvantages of an IVA:
• Usually only suitable if you have unsecured debts of at least £15,000
• To gain approval, creditors representing at least 75% of the value of the money owed, as well as a simple majority, must agree to the proposed arrangement
• IVAs usually last for five years and payments are typically higher
• Your home and assets can still be at risk if the creditors decide not to exclude them
• Should the IVA fail, you can still be made bankrupt. If this happens, the costs of the IVA will be added to the debts
• The insolvency practitioner will closely supervise you
• All IVAs are recorded in a public register and will almost automatically appear on your credit file which could affect any future applications for credit

Documentation
The following documentation is usually required when proposing an IVA, in addition to any information form you may be asked to complete in the application.
1. Property Valuation - or sales particulars of similar properties for sale in the same street or local area (from estate agents or newspapers)
2. Mortgage Statement – the most recent statement
3. Endowment Policy Surrender Value – ask your insurance company for written confirmation of current surrender value of the policy
4. Car Finance / HP Agreement – the original agreement (or copy) and any recent correspondence
5. Salary / Wage Pay Slips - the last three months payslips for you and your spouse (even if your spouse is not liable for any debts)
6. Creditor Statements / Letters - any statement or letter that shows the amount currently owed to each creditor and your current account/reference number with them.
7. Reasons for Financial Difficulties - a detailed personal history explaining how you have got to your present financial position. Debt escalation may be the main/sole reason but creditors may be more sympathetic if you identify reasons such as illness, unemployment, loss of spouse's income, etc.

Summary
• Because of the costs of setting up an IVA, it is only practical if your debts exceed £15,000
• You are less likely to lose your home but, should you have equity in your house, savings or other assets, they will be taken into account when making an offer to creditors
• You can stay in business (a business IVA is called a Company Voluntary Arrangement or CVA). Unlike being declared bankrupt, there's no limit on your business activities.
• IVAs normally last five years
• Creditors you can include are: Banks, Finance Companies, Credit, store and charge card companies, Customs and Excise (VAT), Inland Revenue and even loans from friends and family. You can't include your mortgage, hire purchase, fines, debts incurred through fraud, maintenance/child support arrears or rental property
• You can enter into an IVA if you have already received a Statutory Demand
• You can obtain an IVA if a Bankruptcy Order has been made against you
• If you default on your payments, the supervisor of an IVA can initiate bankruptcy proceedings against you
At the end of the process (usually 5 years), the Insolvency Practitioner will issue you with a 'Statement of Completion', typically within 3 months of the final payment. The Insolvency Practitioner will also send a copy of this to the Insolvency Service so that they can amend their records. The onus is on you to send a copy of the Statement of Completion to all the credit reference agencies which are in operation at the time of their completion.

Please use the links below for more information about:

• Bankruptcy
• Debt Consolidation

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