IVA Faqs

If have money worries, it makes sense to know as much as you can about the various financial solutions available to you. If you are insolvent, one of the available financial solutions is an Individual Voluntary Arrangement otherwise known as an IVA. This short article explains in simple terms what an IVA is and deals with the most frequently asked questions about IVAs.

Who knows, an IVA might be just the solution to your financial problems? If you gain a grasp of the IVA process you might perhaps be able to describe it to some of your friends or colleagues who may have similar debt problems to you.

What is an IVA?

You have debts; you can’t afford to make the agreed payments on your debts; you would like to reach agreement with your creditors to repay what you can afford; you have regular income; you may or may not have assets such as a house; you would like to reach agreement with your creditors to repay some of your debts and to have the rest written off in a reasonable period of time and you would like the agreement to be binding on all of your creditors.An IVA is a formal agreement between you and your creditors to repay a portion of your debt over a limited period – usually five years, but it can be for a shorter period – and it is binding on all parties. At the end of the term, provided you have adhered to the agreed terms, all your debts are discharged. What could be simpler? Well, let’s answer some of the obvious questions that arise. 

Frequently Asked Questions

1.  Must I include all my debts?
   With the exception of secured debts such as your mortgage or your car HP, all other unsecured debts must be included in your proposal for an IVA.
2. What are unsecured debts?
   Credit card debts, loans, current accounts, store cards, borrowings from friends or family, arrears on utility bills such as telephone, gas or electricity, self assessment tax arrears and arrears on council tax or water charges are all examples of unsecured debts.
3. Must all my creditors agree to accept my IVA proposal?
   No. All your unsecured creditors have the right to vote on your proposal but in practice not all creditors exercise this right. Of those creditors who do vote, at least 75% of them, as measured by the value of your debts to them, must accept your proposal for an IVA to come into being.
4. What about creditors who do not vote?
   They are still bound by the decision taken by the creditors who did vote. For example, if you had debts to four creditors of say £20,000, £15,000, £8,000 and £1,000 and only the £1,000 creditor voted then the other three bigger creditors would still be bound by the decision of the smallest creditor, which hopefully would be acceptance of your IVA proposal.
5. What about the IVA being binding?
   All accepted IVAs are registered with the government and the main legislation governing the formation and conduct of IVAs is governed by the Insolvency Act (1986). Once at least 75% of the creditors who voted accept your proposal then the IVA is deemed to be approved and it is binding on you and on all of your unsecured creditors, including those who voted against it and those who chose not to vote either for or against it.
6. How much will I have to pay?
   Only what you can afford. An income and expenditure statement will need to be prepared and your monthly payment will usually be the difference between your income (what you earn plus any pensions, benefits and any other unearned income) and your expenditure (your living expenses, including mortgage and car HP payments and the living expenses of your dependents such as your family).
7. How long will I have to make these monthly payments?
   The usual duration for an IVA is five years or sixty months. However, it can be shorter than that if for example additional funds should become available. For example, if you should re-mortgage your house, with the prior agreement of your unsecured creditors, thereby releasing an equity lump sum, and contribute some or all of this lump sum to your IVA, creditors could agree to reduce the duration of the IVA, enabling you to be debt-free in a shorter period of time.
8. What about my mortgage or car HP payments?
   You continue to pay these directly to your secured creditors and they are allowable expense items on your income and expenditure statement.
9. What about the costs I would incur in an IVA?
   All the costs are taken from the monthly payments you make into your IVA. You have to pay nothing more yourself.
10. Can I get an estimate of these costs?
    Not just an estimate. Your IVA proposal must include a summary of the costs of the IVA. Creditors may reduce these costs when they come to vote on your proposal. However, before you commence your IVA, you will know what the costs are going to be over the full duration of the IVA, which is usually five years.
11. Where can I get advice on IVAs and what will advice cost me?
    There are many professional insolvency firms operating in the marketplace. One of these is McCambridge Duffy, a firm of leading chartered accountants and one of the largest insolvency practices in the UK. McCambridge Duffy offers free advice and ensures that clients are fully aware of all available options. All approved IVAs are supervised by Licensed Insolvency Practitioners. No fees are charged until the IVA is accepted by creditors. At that point fees come out of the client’s agreed contributions into the IVA. If creditors do not accept the IVA, no fees whatsoever are charged.
12. What other options do I have?
    The main alternative options usually considered by people with personal financial problems are to obtain a consolidation loan or to enter a debt management plan or to go bankrupt. It may even be that with a little improvement in the management of your finances, you can manage your own financial affairs yourself and do not need to avail of an IVA, bankruptcy or a debt management plan.