Believe it or not, in certain circumstances you can enter an Individual Voluntary Arrangement (IVA), even if your disposable income is zero. In the current recession many people have lost their jobs and those lucky enough to secure a new job sometimes find that their new salary is substantially reduced from before.
Take a situation where you are in good employment, earning a good salary and enjoying a good but modest lifestyle. No problem paying the mortgage or the car HP. Enough money is left over after normal living expenses of food, drink, clothing, utilities and general living expenses are addressed to service the credit card accounts, a few store-cards, a couple of unsecured loans, and to keep the overdraft below authorised limits. There is enough money left to have one decent holiday a year and to make Christmas and birthdays special for your family and especially for your children. Your spouse or partner is also working and everything looks rosy in the garden. Unsecured debts amount to let’s say £45,000 made up of the credit cards, loans and overdrafts but you are not unduly concerned about these. You have a couple of thousand pounds in savings and you believe that the equity in your house will go a long way to covering your unsecured debts.
Suddenly your employment ceases and you are laid off. After working the period of statutory notice to which you are entitled – let us say one month – you walk away with a relatively small redundancy lump sum – let us say £20,000. While you secure a new job relatively quickly you now find yourself earning a much reduced salary. Unfortunately your partner is also affected by the recession and is forced to accept reduced working hours. You draw up a new household income and expenditure statement, and provide your family can tighten its belts a little bit here and there you believe that you can just about maintain the modest standard of living you enjoyed heretofore.
You can still manage the mortgage and the car HP and cover all normal living expenses. However you have little or no disposable income to service your unsecured liabilities. You cannot even make the minimum payments on an ongoing basis. If you use your redundancy lump sum to service your credit card accounts, store-cards, unsecured loans and overdrafts you know that it will be whittled away to nothing very quickly. When you check your mortgage you find that there is little or no equity in the family home due to the general fall in property values during the recession. In any case you know that you would struggle to re-mortgage the property due to the fall in your income. Even if you succeeded in re-mortgaging, the new mortgage loan to value ratio could be limited to as little as 70%, not enough to clear your current mortgage.
Your annual family holidays seem like a lifetime away and you no longer look forward to Christmas. You know that getting any new credit is out of the question – it would only make a bad situation worse.
However, all is not lost. You still have your redundancy lump sum and your savings. If you were to offer your creditors a lump sum in an IVA perhaps they would accept it. The case for their acceptance of a well constructed IVA proposal is powerful. No extravagant lifestyle. No equity in the property. No prospect of a return for creditors in the event of your being made bankrupt. It would make absolute sense for creditors to accept a lump sum settlement from you in an IVA. While your family lifestyle would diminish somewhat, you and your family would be debt free and you would not lose your home. You know that your credit rating will be affected for six years but then you weren’t planning to borrow anything in the foreseeable future anyhow. So how do you go about entering an IVA?
If you find yourself in circumstances such as in the example outlined above, a good initial course of action is to consult with a reputable Insolvency Practitioner, otherwise known as an IP. Your circumstances will be treated confidentially and your IP will be able to advise you not just on the merits of an IVA but also on all of the other options available to you and your family. Initial advice should cost you nothing.