The Five Phases of an IVA
Shakespeare wrote about the Seven Ages of Man describing the various succeeding phases of the life of a person of normal lifespan from their birth to their passing. It occurred to me that an Individual Voluntary Arrangement (IVA) takes on a life of its own too, albeit its normal lifespan is but half a decade rather than four score years and ten or whatever a human being’s life expectancy is nowadays.
And it’s a good way to look at an IVA. Its beginning is not without its difficulties just like birth and its conclusion can sometimes engender problems for the debtor too.
If you are or think that you may be insolvent, this simple five phase process describes what you need to do if you are to enter into an IVA. Like any good process, planning features heavily in the early phases and execution features heavily in the final phases. Before you make any precipitate decision, it makes sense to get a feel for the total process and you may find, even if you are insolvent, that after conducting this exercise an IVA is not for you and that another financial solution may be best for your circumstances.
Research & Planning
The first phase involves planning and decision making. If you determine that you are insolvent and want to do something about it, here are some of the key questions that you will have to ask yourself and when you have the answers you will have to make some crucial decisions: who shall I go to for help and debt advice and how much will it cost; what options will be explained to me; will I opt for bankruptcy or an IVA or is there an alternative solution that better suits my circumstances such as Debt Consolidation or a Debt Management Plan (DMP) or is there a possibility of getting financial help from my family.
Getting the answers should be quite simple: shop around for help, talk to the CAB and maybe to the CCCS and to at least one reputable commercial provider of insolvency services; find out early on what getting initial advice costs; ensure you have all options explained to you and that you clearly understand the explanations to enable you to make the right choice. Assuming that your best option and the one you prefer, is to offer proposals for an IVA to your creditors, you should now decide on an insolvency firm to assist you in the next phase.
IVA Proposal
The second phase is the preparation of your IVA proposal. Your chosen insolvency firm will be able to verify quite quickly whether you are insolvent or not. Assuming that you are insolvent, 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 your debts were incurred. It should not be too difficult to do this provided you co-operate fully with your Insolvency Practitioner (IP) and the case manager who may be assigned to you. You will need to supply current pay-slips, creditor statements and correspondence, mortgage and HP statements, valuations of your house and car and full details of your household living circumstances including those of your spouse or partner and of your dependents. You will usually have a number of phone conversations with your IP or case manager whom you will authorize to communicate with your creditors on your behalf. If necessary you may be required to meet with your IP face to face. Your IP will then prepare your proposal for an IVA and send it to you to verify and sign off. You will return the signed proposal and your IP will choose a suitable date and venue for a meeting of your creditors and will notify your creditors accordingly.
Meeting of Creditors
The third and crucial phase is the calling of that meeting of creditors (MOC). Your IP, whom you have nominated to help you, hence the term ‘nominee’, will have arranged a venue, date and time for the MOC. In practice, creditors rarely attend such meetings personally. They usually communicate in writing with the IP, providing him or her with proofs of debt and voting instructions by letter, fax and e-mail. The voting instructions will be to accept or reject your IVA proposal via 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 MOC and you must decide whether to agree to any modifications suggested by your creditors. The nominee communicates with the creditors on your behalf and can adjourn the MOC for up to two weeks while you decide what to do. 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. You can of course decide not to proceed and to withdraw your IVA proposal at any time up to and including the MOC. If you should do this, you should be no worse off than before and you should not incur any costs for work done up until now by the nominee and any other staff of your insolvency firm. Assuming you agree to proceed, your IVA can now be said to be commencing.
The IVA
The fourth phase is the commencement of your IVA. Following the MOC, the chairman of the MOC prepares the ‘Chairman’s Report’ and circulates it to all creditors, to other interested parties (such as your mortgage provider or building society), to the court (for Northern Ireland cases but not for cases in England or Wales), and of course to you the debtor. 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 although not always the same IP who acted for you as nominee up until the MOC. From this point in time, all of your unsecured debts will be dealt with under your IVA and your creditors must stop chasing you for repayment. You must immediately commence making monthly payments to your IVA and also contribute when due any other monies required under the terms of my approved IVA, such as funds becoming available from a release of equity, following a remortgage or sale of property. Your supervisor is responsible for distributing these funds to your creditors.
Completion of the IVA
The fifth and final phase of your IVA could be described as the beginning of the end of your financial nightmares. Many insolvent debtors who choose to enter into an IVA enjoy and indeed celebrate the start of this vital implementation phase. The utter joy of seeing the light at the end of the debt tunnel and the cessation of creditor harassment is almost universal. Provided you stick to the terms of your IVA you can expect to be debt free in usually five years. The supervisor must of course review your changing financial circumstances and report regularly to creditors. If your income should increase over and above any increase in the cost of living, then part of the additional net income will also have to be paid into your IVA. Provided you maintain your payments there is no reason why your IVA should not be successfully concluded. Even if there should be a serious adverse change in your financial circumstances during the life of the IVA, your supervisor may be able to offer creditors proposals to vary its terms so as to take account of such changed circumstances and to enable you to complete the IVA successfully and to become debt free. If you keep up your part of the deal you can look forward to being debt-free, worry-free and creditor-free and at the conclusion of the IVA you can look back with pride in navigating the financial journey to its completion.