IVA Pro's and Con's

Key Effects . . . of Proposing an IVA

The Risk to Your Current Assets

Assets such as your home, savings and investments are at less risk than with bankruptcy but they are still at risk. However, because the debtor usually proposes the IVA, and because creditors are being offered regular payments, they tend to be more flexible. It is more usual for creditors to require savings and realisable assets (endowment policies, premium bonds, ISAs etc) to be cashed with the home remaining relatively untouched except for the release of some of the available equity usually towards the end of the arrangement.

Where a debtor expects to receive an inheritance or already has assets they should give consideration to any increase in value there may be whilst an IVA is in force. It may be possible to arrange matters to avoid losing out in such circumstances such as amending a will but not by transferring assets in a manner designed to evade a liability to creditors.

The Effect on Your Future Credit

IVAs do impair your credit worthiness. Certainly whilst the arrangement is in place, credit will be something that you will not be allowed to take without the permission of the arrangements supervisor.

The Effect on Your Reputation and Stress

IVAs do not have the stigma that is attached to bankruptcy, so the impact on the reputation is minimal. IVA's are not advertised in the press. However, they will be recorded on the IVA register held by the DTI. Establishing an IVA can be stressful, even if only temporarily. Initiating an arrangement and obtaining final agreement from creditors can be time consuming.

The Pros

• There is not the stigma or publicity that normally accompanies bankruptcy.
• A debtor can continue to trade in a business to generate income.
• The debtor is involved in the choice of assets made available to 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 are normally lower than bankruptcy, enabling higher payments for creditors.
• Creditors can claim tax relief against bad debts just as with bankruptcy.
• Creditors who vote against the IVA are still bound by it as long as the required majority (75%) in value of the creditors who have voted agree to it.
• Creditors recognize that they must accept less than all the money owed.

The debtor does not suffer the same restrictions imposed on bankrupts. For example, a debtor can still be a company director or in the armed forces.

The Cons

• Usually only suitable if the debtor has unsecured debts of at least £15,000.
• To gain approval a required (75%) of the value of those creditors who have voted money must agree to accept the proposed arrangement.
• The home and assets of the debtor can still be at risk if the creditors decide not to exclude them.
• Should the IVA fail, the debtor can still be made bankrupt.
• All IVAs are recorded in the DTI register and could appear on the debtors credit file. This could effect any future applications for credit.

Basic Procedure

Initial questionnaire returned to Insolvency Practitioner.

letter sent to client advising that the case is potentially an IVA and that an initial draft of the IVA Proposal is being prepared.

Draft Proposal issued to client with request for outstanding information.

Draft returned by client. IVA Proposal is updated and formally served on the Nominee.

On receipt of the Nominee's "Consent to Act", Interim Order application is issued to client.

Clients usually file the paperwork at Court but may swear before a solicitor and the Insolvency Practitioner will file.

Interim Order granted by Court

Nominee's Report filed at Court
Report comments on Proposal and states date, time and place for creditors' meeting.

Notice of meeting is issued to all creditors with copies of the Proposal, Nominee's Report and Proxy.

Creditors' meeting held.
Meeting is held not more than 28 days from hearing of Nominee's Report. It may be adjourned up to a maximum of 14 days from the date of the original meeting.

Information & Relevant Documentation required for a

Proposal.
Below is a list of information usually required when proposing an IVA. This will be in addition to any documentation the debtor completes initially.

Property Valuation
A debtor can obtain a copy of the sales particulars of similar properties for sale in the same street or local area from local estate agents or newspapers.

Mortgage Statement
Issued annually, usually following December 31st or March 31st.

Endowment Policy Surrender Value
The debtor should telephone the insurance company and ask for verbal confirmation of the current surrender value of the policy followed by written confirmation.

Car Finance / HP Agreement
Original finance agreement (or a copy) and any recent letters.

Salary / Wage Payment Advices
The debtors least three months pay-slips (ideally consecutive) and the same for their spouse even if the spouse is not liable for any debts.

Creditor Statements / Letters
A statement or letter that shows the amount currently owed to each creditor which includes their address and the debtors account/reference number.

If the latest amount is on a solicitors/collector's letter, it would be helpful to also have an older letter directly from the creditor to ensure that the reference number is correct as collectors can use their own reference numbers.

Reasons for Financial Difficulties
A personal history and background that explains in as much detail as possible the setbacks that have lead to the debtors present financial position.

This is the debtors opportunity to explain to creditors the reasons for their current financial problems. Escalating debt is the result but there is no doubt that creditors can relate to identifiable reasons such as relationship problems, illness, unemployment, loss of spouse's income, etc.

This explanation may be just as important to creditors when making their decision to accept an IVA proposal as the amount that they will receive.