What is an IVA?

An IVA (also known as an Individual Voluntary Arrangement) is a legally binding debt repayment agreement between an individual in debt (debtor) and the people he or she owes money to (creditors). It was introduced by the government as part of the Insolvency Act 1986 as an alternative to bankruptcy A standard IVA will offer to pay whatever the debtor can afford to contribute each month into a fund, over a five year period. The amount that is repaid via an IVA is usually less than the total debt but is accepted as a final settlement by the creditors. An Insolvency Practitioner (IP) can only put IVAs together. We will need to ask you a number of questions about your financial situation in order to calculate how much you can realistically pay your creditors each month. This is based on what you can afford, not what creditors are asking for.

1. How Long Does an IVA Last?

An IVA normally lasts for five years, however it is also possible to complete an IVA in a shorter period, especially if it is possible to produce a partial lump sum.

2. Who Can an IVA Help?

Anyone in England, Wales or Northern Ireland with debts over £15,000 and a stable income could benefit from an IVA. For residents of Scotland we can recommend a practitioner who can set up the equivalent (Standard Trust Deed).

3. Can I protect my home?

Outside of an IVA, creditors can obtain judgements and then onto obtaining charging orders against your property. They can also petition for your bankruptcy which will mean that your property is at risk. Once your IVA has been approved, creditors cannot take any further action against you.

4.Can an IVA be settled early ?

Yes a variation meeting can be arranged to offer a sum of money in full and final settlement of your obligations under the IVA. The sum of money could be raised by:

Remortgaging your property

Funds from a relative

Cash in policies (Subject to getting you expert investment advice)

A great number of IVA's end early with the introduction of a lump sum of money. Creditors do support early settlements as they generally prefer to receive their money early than wait for payments over a five year period.

5. How Much Does an IVA Cost?

When debtors propose an IVA to their creditors, they offer to re-pay a percentage of the debt via monthly installments. The sum suggested is based on what the debtor can afford to pay. This means that the monthly debt re-payments vary on a case-by-case basis. They depend on what assets the debtors have and how much money they have available after their living expenses have been deducted from their monthly income. However, there does tend to be a minimum amount that creditors will accept as part of the IVA proposal. An IVA is usually rejected if it offers to pay the creditors less than 20-25% of what they were originally owed.

6. What Happens When an IVA Has Been Completed?

At the end of the IVA process the supervisor will give you a "Statement of Completion", normally within three months of the final payment. A copy of this will also be sent to the Insolvency Service for their records.

7. What Happens if I Default on My IVA Payments?

If you don't adhere to the terms of your IVA by defaulting on your payments then the supervisor of the IVA can start bankruptcy proceedings against you.

8. What are the Advantages of an IVA Over Bankruptcy?

Setting up an IVA does not have any of the same stigmas or disqualifications associated with bankruptcy. Unlike bankruptcy, an IVA is a private agreement with your creditors which means that it does not get publicised. There are also no professional disqualifications and you maintain your right to hold public office. Furthermore, bankruptcy proceedings are much more costly for the debtor and creditor than setting up an IVA. Please click here for more information about the advantages of an IVA over bankruptcy.

9. Can I Set Up an IVA if a Bankruptcy Order Has Been Made Against Me?

If the Bankruptcy hearing has not taken place yet this is possible, the Insolvency Practitioner may have to issue an Interim Order to halt proceedings while an IVA proposal is put together. If the Bankruptcy Order has already been issued it is still possible to propose an IVA, however it is more difficult to reach an attractive proposal to the creditors as the bankruptcy costs must be taken into account on top of the costs of setting up the IVA.

10. Will I Have to Sell My House if I Set an IVA up?

Unlike with bankruptcy, with an IVA you will not be forced to sell your home. However you might be asked to release some of the equity in your property to pay your creditors

11. Will My Creditors Agree to an IVA?

In order for your IVA to be accepted, 75% of your creditors have to vote in favour of it. In our experience there are certain things that make a creditor more likely to accept an IVA proposal. For instance, you should never propose to repay less than 25% of the total debt.

12. If I Set Up an IVA Will Anyone Interfere With the Running of My Business?

As long as you stick to the terms of your IVA, you can carry on running your business under your sole control and without any outside interference.

13. Does an IVA Affect My Credit Rating?

Whilst the IVA is in place you are not allowed to take out any further unsecured credit such as credit cards, store cards, personal loans, etc. This is a standard stipulation of an IVA and a note will be put on your credit file alerting potential lenders to the fact that you have entered the agreement. This note will remain on your credit file for a total period of six years (i.e. normally one year longer than the duration of the IVA). While this record is on the credit file many lenders will choose either to lend at a high interest rate or not at all. There are some lenders who specialise in mortgages or secured loans for people with previous credit problems.