People who want to find out about Individual Voluntary Arrangements (IVAs) or other financial solutions are sometimes wary about making enquiries and trying to obtain financial advice on the basis that there is no such thing as a free lunch.

In an IVA people repay their creditors as much as they can afford within a reasonable period of time, often within five years. They know that creditors frequently get little or nothing out of bankruptcy.

Affording the fees in an IVA

A major concern for many people who become insolvent and are considering entering into an IVA is whether they can afford the fees incurred in the process.

Yes, an IVA will help you get out of debt – but with a few provisos. In the first instance you have to be eligible to enter into an Individual Voluntary Arrangement (IVA).

Acceptance by creditors of the IVA proposal at the Meeting of Creditors is a high point for many debtors and completes the third phase of the process as described in the last article. The fourth phase is the commencement of the IVA and is the beginning of the execution phase. Following the Meeting Of Creditors, the chairman prepares the ‘Chairman’s Report’ and circulates it to all creditors, to other interested parties (such as mortgage provider or building society), to the court (for Northern Ireland cases but not for cases in England or Wales), and of course to the debtor. In it is summarised the outcome of the Meeting of Creditors and what the debtor must do to successfully complete the IVA. It also identifies the name of the IP who is going to supervise the IVA. This is often although not always the same IP who acted as nominee up until the Meeting of Creditors.

The fifth and final phase of the IVA could be described as the beginning of the end of the debtor’s financial nightmares. Many insolvent debtors who choose to enter into an IVA enjoy and indeed celebrate this final 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 the debtor sticks to the terms of the IVA they can expect to be debt free at the end of the term which is often five years.

You have at this stage completed the first phase of your IVA which involved taking advice, planning what to do about your insolvency and making appropriate decisions.

An IVA can be conveniently broken down into five distinct phases. Just as Shakespeare wrote about the Seven Ages of Man describing the various succeeding phases of the life of a person, so we can look at the phases of an IVA: firstly there is the planning and decision making; secondly comes the preparation of the IVA proposal; thirdly comes the Meeting of Creditors; fourthly the commencement of the IVA proper – the crucial early period and finally comes the fifth and final phase, the completion of the IVA. 

We have already looked at the first phase which involves planning and decision making. Having determined that you are indeed insolvent and having taken advice from various sources of expertise you have now decided to proceed with an IVA. You have chosen an insolvency firm to work with in the second phase which is the preparation of your IVA proposal. Your chosen insolvency firm has verified that you are insolvent and has already explained all your options to you. You will now 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 your case.

It can be a worry for anybody who is thinking of entering an IVA as to how the process will affect their mortgage with the biggest fear being of losing their house. If they are married or simply co-habiting then they want to make sure that anything that happens as a result of their going into the IVA does not impact negatively on their spouse or partner or indeed on themselves and their children. Let’s look at the effects of an IVA on the mortgage of a single person first.

Most IVAs have a typical duration of five years from commencement. However the duration will depend on the debtor’s circumstances, particularly the key factors of assets, debts, income and expenditure and the attitude of creditors as expressed at the meeting of creditors which precedes the commencement of the IVA. In practice the debtor’s IVA proposal spells out the proposed duration and this may be as short as a few months to as long as seven years.

When any individual enters into an Individual Voluntary Arrangement (IVA), they are making a formal agreement with their unsecured creditors to repay a chunk of their debts over a finite duration. The length of an IVA is five years in most cases though it may be shorter when, for instance, the borrower offers unsecured lenders a ‘one-off’ lump sum settlement. The cash might come from the sale of the debtor’s property or it could be money given by the debtor’s friends or family explicitly to permit him or her to settle the money they owe. However, the majority of IVAs are based on monthly payments coming from the debtor’s disposable income for a time period of five years. The question comes up, how does the person in debt take care of secured lenders?

The Disposition of Lenders With Regards to Proposals for IVAs

Most people would assume that when it boils down to it, lenders would adopt the practical attitude to each and every IVA proposal, voting in favour of it when it affords the best possibility for the maximum gain on the loaned monies and voting against it if another course of action offered or promised a higher yield. In real life, things are not really that uncomplicated. Despite the fact that a particular IVA offer is obviously the best offer the borrower can make from a simply monetary viewpoint, lenders might sometimes deny it for reasons apart from on the rationale of the financial yield.

Assuming that you know that you are currently insolvent you really need to find a solution. Here is how to go about it. First of all you will need to decide who to go to for assistance and debt information. Next is to determine just what obtaining that advice will cost. Whichever company provides the advice should clarify the various options which might be available. You’ll then need to ascertain whether to petition for bankruptcy or to go into an Individual Voluntary Arrangement with your lenders or maybe to embrace some other solution that will more effectively fit your circumstances. You might be able to get financial assistance from your family or if there’s any doubt about your insolvency it might be feasible to obtain a consolidation loan and pay off all of your obligations over a lengthier timeframe than your current loans permit as they exist.

Even though you possess zero property or assets, it doesn’t preclude you from suggesting an Individual Voluntary Arrangement to your creditors. Anyone can present proposals for an IVA to their lenders provided they are insolvent. There’s no need to own a house or indeed any other property, for instance a motor vehicle or a boat.

It’s a big anxiety for those who are thinking of entering into an IVA as to how that process might have an impact on their mortgage. Are they going to lose their house? If they are married or simply co-habiting then they need to make sure that whatever crops up on account of their entering into the IVA isn’t going to impact negatively on their spouse or partner. Let’s look at the impact of an IVA on the mortgage of a single individual to begin with.

When you have a lot of different debts and are struggling to manage them, it can be a real task just working out which options are going to help your situation. The advice of professional debt experts is invaluable if you’re in this position, as the best option for you is something that’s really impossible to say without looking at the details of your case.

If you’re being pursued for debts, it can seem like you have fewer and fewer options as time passes, and that the time to sort things out is pretty short. However, IVAs are specifically designed to help people in these sorts of situations.