If you think that you may be insolvent but are unsure what to do about it here is a simple five step process that describes what you will need to do if you are to enter into an Individual Voluntary Arrangement (IVA).
Like any good process, planning features heavily in the early stages and execution features heavily in the final stages. Before you make any precipitate decision, it makes sense to get a feel for the total process and you may find, after conducting this exercise, that an IVA is not for you and that another financial solution may be best for your circumstances.
Step 1 – Decisions I will have to make
If you determine that you are insolvent and want to do something about it, here are some of the key questions you have to ask yourself and when you have the answers you will have to make some crucial decisions. Questions; who shall I go to for help and debt advice; how much will it cost me; what options will be explained to me; will I opt for bankruptcy or an Individual Voluntary Arrangement or is there an alternative solution that better suits my circumstances such as Debt Consolidation or even the possibility of getting financial help from my family. Answers: I should shop around for help – talk to at least one reputable commercial provider of insolvency services and to CAB and maybe CCCS; find out early on what getting advice will cost me –they say it should cost nothing, but we’ll see; hopefully all options will be fully explained to me so that I can make the right choice. Let’s assume that my best option and the one I prefer, is to offer proposals for an IVA to my creditors. I now have to choose an insolvency firm to assist me. What is the next stage and what do I have to do?
Step 2 – Preparation of my IVA proposal
An insolvency firm will be able to verify quite quickly whether you are in fact insolvent. If you are you will need to furnish documentation in regard to your debts and assets, your income and expenditure and full details of your personal and financial circumstances, particularly as to how debts were incurred. It should not be too difficult for me to achieve this if I co-operate fully with my Insolvency Practitioner (IP) and the case manager assigned to me. I will need to supply current pay-slips, creditor statements and other creditor correspondence, mortgage and HP statements, valuations of my house and car and full details of my living circumstances and that of my family and dependants. I expect to have several phone conversations with my IP or case manager whom I will authorize to communicate with my creditors on my behalf. If necessary I will meet with my IP face to face. My IP will then prepare a proposal for an IVA and send it to me to verify and sign off. I will return the signed proposal and my IP will choose a suitable date and venue for a meeting of my creditors and notify my creditors accordingly.
Step 3 – Meeting of Creditors
Your IP whom you have nominated to help you – hence the term ‘nominee’ – will have arranged a venue, date and time for the Meeting of Creditors. In practice, creditors rarely attend such meetings personally. They usually communicate in writing with the IP – providing proofs of debt and voting instructions by letter, fax and e-mail. The voting instructions will be to accept or reject your IVA proposal in what is called ‘proxy voting’. This simply means that they will not be personally present to cast their vote. They authorize (by proxy) another person – usually the chairman of the meeting – to vote in accordance with their instructions. They may also vote to amend the terms of the proposal in what are called ‘modifications’. You will be kept informed of the progress of the meeting and it is your decision as to whether to agree to any modifications suggested by your creditors. The nominee communicates with the creditors on your behalf and can adjourn the meeting for up to two weeks while you consider if you are prepared to agree to any modification the creditors have proposed. I understand that I can decide not to proceed and to withdraw my IVA proposal at any point up to and including the meeting of my creditors. If I should do this, I am no worse off than before and I understand that I should not incur any costs for work done up until now by the nominee and other staff. Assuming I agree to proceed, what happens next?
Step 4 – The beginning of my IVA
At least 75% by value of those of your creditors who chose to vote must accept your proposal and you must of course agree to accept the creditor modifications (if any) for your IVA to be approved. Once these two conditions are met the IVA is officially approved and becomes binding on you and on all of your unsecured creditors, including those creditors who chose not to vote at all. The chairman of the MOC now prepares the ‘Chairman’s Report’ and circulates it to all creditors, to the court and of course to you. In it is summarized the outcome of the MOC and what you must do to successfully complete your IVA. It also identifies the name of the IP who is going to supervise your IVA. This is often the same IP who acted for you as nominee up until the MOC. I understand that at this stage all of my unsecured debts will be dealt with under my IVA and my creditors must stop chasing me for repayment. I will immediately commence making monthly payments to my IVA and also contribute any other monies required under the terms of my approved IVA. My supervisor has the responsibility of distributing these funds to my creditors.
Step 5 – The life of my IVA
For many insolvent debtors who choose to enter into an IVA, this moment is one of the highlights. The utter joy of seeing the light at the end of the debt tunnel and the cessation of creditor harassment is almost universal. Provided they stick to the terms of the IVA they can expect to be debt free in (usually) five years. The supervisor must of course review their changing financial circumstances and report regularly to creditors. If a debtor gains an increase in income over and above any increase in the cost of living, then part of the additional net income will have to be contributed to the IVA. Provided payments are maintained there is no reason why the IVA should not be maintained and successfully concluded. Even if there is a serious adverse change in the debtor’s financial circumstances the supervisor may be able to offer creditors proposals for a variation to the IVA, to enable the debtor to complete the IVA and to become debt free. I understand that if I keep up my part of the deal that I can look forward to being debt-free, worry-free and creditor-free. Looking back, I think that this is a plan that I could adhere to and I understand that there is quite a high success rate, particularly among the more reputable insolvency firms, of people successfully navigating the IVA journey to completion.