Individual Voluntary Arrangements (IVAs)
What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement, or IVA, is a legal process that allows you to make a formal proposal to your creditors to clear your unsecured debts without resorting to bankruptcy. This should not be confused with the less formal and less conclusive Debt Management Plan (DMP). Is an IVA right for you? Find your debt solution with our free help and advice..
It is surprising how few people in debt actually know that the option of an Individual Voluntary Arrangement (IVA) even exists, hopefully the following notes will explain the process.
The majority of Individual Voluntary Arrangement (IVA) cases are structured around one, affordable repayment each month, over a period of 60 months. This payment is carefully calculated with the debtors assistance and takes into account ALL of their assets and liabilities, their income and their cost of living expenses. The amount payable to creditors is determined by the amount that the debtor can reasonably afford to pay into the Individual Voluntary Arrangement (IVA), after their normal cost of living expenses have been deducted from their income. This will ensure that the debtor never gets into arrears or misses paying any of their priority commitments such as their mortgage or rent, car finance, utility bills, council tax, etc.
The alternative Individual Voluntary Arrangement (IVA) structure, which is used less often, is known as a 'Full and Final Settlement ' or 'Lump Sum' Individual Voluntary Arrangement - IVA, and is based on a single 'one off' payment.
An Individual Voluntary Arrangement - IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP) who, whilst acting as the Individual Voluntary Arrangements (IVA's) Nominee , then it is presented at a creditors meeting. Before this meeting is held, a draft copy of the Individual Voluntary Arrangement (IVA) proposal is sent to the debtor to be approved. It is at this point that any alterations are made if necessary.
In cases where legal action against the debtor is well advanced there is a protection order that can be applied for known as an 'interim order ' but this is done at the IP's discretion.
Once completed, a copy of the debtors Individual Voluntary Arrangement (IVA) proposal is sent to each creditor giving them notice as to the time and the place of where and when the Individual Voluntary Arrangements (IVA's) creditors meeting will be held. The IP will normally chair this meeting, acting as an honest broker between the Individual Voluntary Arrangement (IVA) applicant and their creditors ensuring that the Individual Voluntary Arrangement (IVA) proposal being made is both realistic and fair to all of the parties concerned, however, this is not mandatory.
In the case of a consumer Individual Voluntary Arrangement (IVA), it is unusual for any creditors or their representatives to attend the creditors meeting as most prefer to vote by fax or by post. It is also unusual for the debtor to be asked to attend the meeting, they will more likely be asked to be close to a telephone whilst the meeting is being held. Things may be different if the debts being considered where incurred during commercial activities when in which case the creditors may well want to meet the debtor face to face.
At the meeting, creditors can either vote to accept or reject the debtor's Individual Voluntary Arrangement (IVA) proposal or accept it with modifications, but these can only be made with the debtors consent.
The rules of an Individual Voluntary Arrangement (IVA) state that providing 75% (in value terms) of those that have voted, vote to accept the proposals (with or without modifications) then the Individual Voluntary Arrangement (IVA) is agreed and becomes legally binding on all other parties whether they voted or not. The effect of this is that, any creditor who chooses not to vote at the creditors meeting is bound by the decision of those who do.
When an Individual Voluntary Arrangement (IVA) is accepted the IP's role becomes that of Individual Voluntary Arrangements (IVA's) Supervisor, monitoring the Individual Voluntary Arrangements (IVA's) progress and ensuring that the terms and conditions that were agreed to at the creditors meeting are properly adhered to. It is the debtors responsibility to pay the agreed payments to the IP, who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with terms and until the successful completion of the Individual Voluntary Arrangement (IVA).
It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the Individual Voluntary Arrangement (IVA). This situation should be avoided at all costs. If a debtor experiences difficulty in making the agreed IVA payments they should contact their Individual Voluntary Arrangement (IVA) supervisor who may be able to re-negotiate with creditors by calling for a Variation Meeting .
Upon the successful completion of the Individual Voluntary Arrangement (IVA) the debtor will be considered debt free, even though they may not have actually paid off all of their debts in full. Any outstanding balances are written off (known as a composition of debts) and the debtor is then free to make a fresh financial start.
It is worth noting that if you do enter into an Individual Voluntary Arrangement (IVA) with your creditors and you have an endowment policy linked to your mortgage then you may be expected to cash it in and pay the proceeds into the arrangement. Likewise, if your property has a reasonable amount of equity then it is likely that a some of it will have to be released at sometime during the arrangement (usually within the final year), so it can be paid to creditors. Drastic as this may sound it can be a deciding factor in whether an Individual Voluntary Arrangement (IVA) is approved by creditors and a realistic way in which a debtor can retain their property.
Most IVAs involve one affordable repayment per month, over a period of 60 months (five years). Your monthly repayment will be based on the amount you can afford after your normal cost of living has been deducted from your income and all your assets and liabilities have been taken into account, therefore reducing the risk of your IVA repayments pushing you into arrears and forcing you to miss payments on your mortgage or rent, car finance, utility bills or council tax. Less often, debts can be paid by using a, one-off payment known as a ‘Full and Final Settlement’ or ‘Lump Sum’ Individual Voluntary Arrangement (IVA).
An IVA proposal has to be drafted by a licensed Insolvency Practitioner (IP), which is then approved by you. A copy of the proposal will then be sent to your all of your creditors, and a creditors meeting arranged. The IP will chair the meeting, in which creditors vote on whether to accept or reject your IVA proposal, or to accept it with modifications made with your consent. The voting will often take place by fax or by post, and you will not normally be required to attend the meeting. If more than 75% in debt value terms of the creditors creditors that actually choose to accept the proposal, the IVA is agreed and becomes legally binding for all parties, whether they voted or not.
When you have successfully completed your Individual Voluntary Arrangement (IVA), you will be considered debt free, even if you haven’t repaid all of your debts in full. Any outstanding balances will be written off, leaving you free to make a fresh financial start.
Call free on 0800 088 7505 to find out more or get help with applying for an Individual Voluntary Arrangement (IVA). Alternatively you can read the Individual Voluntary Arrangement (IVA) FAQ's.