Individual Voluntary Arrangements (IVA) are a way to avoid bankruptcy – you can even set one up after you have been declared bankrupt, which causes your bankruptcy to be cancelled. It is a voluntary deal made with your creditors; you can ensure the deal is as flexible as possible. The intricacies of changing a repayment plan make IVAs complicated and expensive to establish. However, additional expense and effort is preferable to losing your home and possessions. Find out if an IVA is for you.
- What is an IVA?
- The pros of an IVA
- The cons of an IVA
- When is an IVA the right move?
- Making an IVA proposal
- IVA companies
An IVA is a promise to pay creditors part of what you owe them, usually by regular payments over a fixed period of time. In order to set up an IVA, you must persuade 75% of your known creditors to accept the deal. As long you keep up the IVA payments, none of your creditors is allowed to make you bankrupt and, when the IVA is over, the slate is wiped clean of those debts.
In order to persuade 75% of your creditors to agree to an IVA, rather than to go ahead and make you bankrupt, you will have to convince them that they will get more money through the IVA than they would if they were to make you bankrupt.
You will be required to provide full information about your finances to a “licensed insolvency practitioner” (usually a qualified lawyer or accountant) who will prepare a report for the court and your creditors. Your creditors will then meet and decide whether to accept your offer. Your offer must be the best you can afford: concealing information or lying to your creditors in order to get an IVA is a criminal offence.
IVAs are flexible: there is no minimum level of debt you must have before you install one, no fixed length of time they have to last for and no fixed amount or percentage of your debt you have to pay. It is entirely up to you and you decide the pace of repayment. For example, you may be able to persuade your creditors that your home can be left out of the deal (though bear in mind that you still have to make an IVA attractive to them)
An IVA does not impose the same restrictions as bankruptcy (e.g. disqualification from being a director or the loss of your property) and the expenses and costs of setting up and carrying out an IVA are lower than the expenses and costs of a bankruptcy. The details of each IVA are not publicised in the press, unlike bankruptcy.
It is a complicated procedure. Professional help and advice from a licensed insolvency practitioner is essential, which means IVAs are not free! They are likely to swallow up a few thousand pounds in expenses – money that could otherwise be spent paying off your debts. IVA providers can charge big, front-loaded fees. These are paid within the arrangement which means that a lot of the money you’re paying in at the beginning is actually going into paying their fees rather than the debt itself.
An IVA tarnishes your credit rating and access to credit is removed for the duration of the arrangement.
If you own your home and your creditors allow you to keep it, they may still require you to release some of the equity in it. And if you fail to keep up your scheduled payments you may incur hefty penalties, or be declared bankrupt.
If you want to avoid the restrictions and stigma of bankruptcy, an IVA is perfect, providing you can convince creditors that they will receive more money through the IVA that they would through bankruptcy. As a very rough rule of thumb, you should believe yourself able to pay off about a third of your debts over 5 years – but what will be acceptable to creditors will vary from case to case. Even if you are currently bankrupt and want to change your situation, an IVA enables you to reorder your finances on your terms and is still available to you. All you need to do is convince your creditors they will receive more by cancelling your bankruptcy and releasing your assets.
If you have very few assets or doubt you can keep up the payments, bankruptcy is a better option.
As soon as possible! Here’s how to do it:
The first step to take is to find a licensed insolvency practitioner (your local county court can give you lists of local practitioners) to be your “nominee”. This is the person who presents your financial report to the court and your creditors. With their help, you can make an application to court for an “interim order”, which prevents creditors petitioning for your bankruptcy or taking legal action to seize your assets while you set up the IVA.
If the IVA is approved by your creditors, then the nominee will usually become the supervisor of the IVA, ensuring you keep up the payments. Supervisors are obliged to petition for your bankruptcy if you make a default in your payments under the IVA.
These companies are selling a product like any other business and exist to make a profit. They make their money from setting up hundreds of IVAs and taking a cut of the money that goes to creditors. In effect, they take some of your money before it gets to the creditors. They generally only accept debtors with a minimum level of debt of around £15,000, otherwise their profit is minimal. And generally, they offer IVAs with a length of 5 years.
The services that these IVA companies provide range from hiring the nominee to appointing the supervisor. If you’re going to use a company, it is very important to choose a reputable one.
The industry is at present not very well regulated. There is only one body which oversees it (DEMSA – the Debt Managers Standards Association) and it only has 5 members! Their contact details can be found on DEMSA’s website.
Beware of websites that appear to offer independent advice (except this one, obviously!) Some give themselves names to suggest that they are a governmental body, or are only interested in offering you “advice”. In fact they are trying to sell you an IVA. They are running a business and their advice must be treated the same as advice given to you by anyone selling you anything!
Good impartial and independent websites are very few on the ground. The best is www.insolvency.gov.uk – a government agency.
Want to know more?
- Take some independent government advice
- R3, the Association of Business Recovery Professionals (who also deal with personal insolvency) have an enormous of articles and leaflets on IVAs.
- IndependentFinancialAdvisor.co.uk have added a fantastic section to their site which focuses on FREE debt advice for those of you who are struggling.