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.
A shorter duration IVA may be proposed based on what is often described as a ‘one-off’ proposal. This is where the main contribution to be made by the debtor is a lump sum. In such cases the lump sum may come from the proceeds of sale of a property (owned by the debtor or by a third party who is prepared to help), the release of equity by remortgage of property, monies advanced by the debtor’s spouse or by other members of the debtor’s extended family. If the debtor has regular disposable income as well as assets the IVA may well be a combination of a lump sum and monthly contributions from income and in such a case the duration could be five years or longer.
Frequently however, the availability of the lump sum may be dependent on the debtor’s capacity to repay the source of the lump sum (family or re-mortgage provider) from income and in some cases the debtor’s disposable income would be largely or fully committed for that purpose. If that is the case, the proposed duration of the IVA could be relatively short. Two other factors may affect the duration of the IVA. Creditors may seek to have the proposed duration extended so as to enhance the dividend or to address potential equity which may build up in the debtor’s property over the normal five years duration. The second factor is that the debtor’s financial circumstances may change for the worse during the life of the IVA and the proposed monthly contributions may have to be reduced. One solution to this problem which is often proposed is to extend the duration of monthly payments so as to achieve the dividend originally proposed. The mechanism to do this is for the supervisor to call a ‘variation meeting’ of creditors so that the duration may be extended.
In general IVAs last five years with a small percentage having a much shorter duration of as little as six months and an even smaller percentage lasting six or seven years.
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