If you have money worries and feel that you may be insolvent, you might like to learn about an Individual Voluntary Arrangement, commonly called an IVA, and how it might help you. Knowing what an IVA is and understanding the IVA process makes it easier when you have to decide whether to engage in this process or try some other possible solution for your financial distress.
We will look at some of the more frequently asked questions and provide brief answers. Even if an IVA is not for you, at least you will have a better understanding of one of the most popular solutions for personal insolvency and be able to discuss it with friends or colleagues who may be faced with debt problems of a more serious nature than yours.
Assuming you have debts and can’t afford to make the agreed payments to your creditors you might still like to reach a binding agreement with them to repay what you can afford. Provided you have a regular income, an IVA may help you to reach such an agreement and to repay some of your debts in a reasonable and fixed time period. At the end of that time period, an IVA allows you to write off the remainder of your debts, provided you have adhered to the terms of the IVA, as agreed by you with your creditors at the outset. These remaining debts are deemed to have been discharged.
You may or may not have assets such as a house or a car. If you do you will also reach agreement with your creditors how these assets are to be treated in the context of your IVA. You will not necessarily lose such assets, although you may have to make some contribution to your IVA in respect of your interest in them, such as the equity in your house. Most people entering an IVA can retain control and ownership of such assets.
An IVA then is a formal and binding agreement to repay a portion of your debt over a limited term – usually five years, but it can be for a shorter period. An IVA is binding on all parties to the agreement, namely you and your creditors. Here are some of the frequently asked questions.
Must I include all of my debts in my IVA proposal?With the exception of your secured debts such as your mortgage or your car HP, all unsecured debts must be included in your proposal for an IVA.
What are unsecured debts?Credit cards, 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.
Must all of my creditors agree to accept my IVA proposal?No. All your unsecured creditors have the right to vote on your proposal. In practice, not all creditors exercise this right to vote. Of those unsecured creditors who do choose to 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. One way to think of it is that each pond of debt is equal to one vote so the creditor to whom you owe the most money has the greatest voting power.
What about unsecured creditors who do not vote? They are still bound by the decision taken by the creditors who did exercise their right to vote.
What about the IVA being binding? All accepted IVAs are registered with the government. The main legislation governing the formation and conduct of IVAs is governed by the Insolvency Act (1986) together with some more recent legislation.
How much will I have to pay each month once my IVA commences?Only what you can afford. An income and expenditure statement is prepared and your monthly payment will usually be the difference between your income (made up of what you earn in your employment together with any other income you receive such as pensions, dividends and benefits) and your expenditure (made up of your day to day living expenses, including mortgage and car HP payments and the living expenses of any dependents you may have such as your family). This difference is usually called your disposable income or your DI.
How long will I have to make these monthly payments into my IVA?The usual duration for an IVA is five years or sixty months. However, it can be shorter than that if 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.
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.
What about the administration costs I would incur in an IVA?All the costs are taken from the monthly payments you make into your IVA and these will have been agreed upfront with your creditors. You have to pay nothing more yourself.
Can I get an estimate of these administration costs? You can do better than get an estimate. Any reputable provider of insolvency services, the people who assist you in compiling your IVA proposal, will ensure that a summary of the costs of the IVA are included in the proposal itself and these will usually be fixed over the duration of the IVA. So, you will know up front what the costs of the process will be over the full duration.
Where can I get advice on an IVA and what will it cost me?There are many firms offering insolvency services on a commercial basis and part of that service is to provide free initial advice. There are also some charitable firms such as CCCS who are funded by creditors who can also provide free advice. If you decide to propose an IVA to your creditors, you are obliged by law to use the services of a qualified and licensed Insolvency Practitioner (IP) in compiling the IVA proposal and calling the meeting of creditors which will decide to accept it or reject it. The IP who acts for you up to and including the stage of the meeting of creditors has the title of Nominee. Once your IVA is approved by your creditors, it is supervised and administered by your IP also, who now has the title of Supervisor. Your IP (whether in the role of Nominee or Supervisor) charges no fees and receives no income whatsoever until the IVA has been accepted by your creditors. The IP’s fees then come out of the monthly payments you have agreed to make into your IVA. If your creditors do not accept your IVA proposal, your IP receives no fees whatsoever and you, the debtor, have nothing to pay.
What other financial solutions could I consider?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 or in some cases to obtain financial assistance from a family member. It may even be possible to manage your financial problems a little differently and find that you are not insolvent after all. In such a scenario you may be able to manage your own financial affairs yourself.
Can I get advice on all of my options and how do I go about doing this?A good first step is to contact several reputable firms who offer personal insolvency services (just to make sure you are getting the best advice and that that advice is consistent). Alternatively you could contact one of the charitable free advice agencies such as the CCCS or a local CAB office. You should not have to pay anything to get advice on your options. You will need to provide full details of your financial circumstances and following your consultation you should have a much clearer idea of what to do next. You may need several meetings to get to that point. When you are satisfied that you know and understand your options, you are still free to walk away, with the benefit of the advice. You do not have to commit to anything.