An essential precondition to be eligible to enter an Individual Voluntary Arrangement (IVA) is that you must first be insolvent. While there are alternative solutions for the insolvent debtor such as bankruptcy, this review will just consider the pros and cons of the IVA solution if you are unfortunate enough to find yourself in this predicament.
An IVA will provide relief from your debts while enabling you to repay as much as possible to your creditors. You avoid the stigma of bankruptcy with its associated disabilities, restrictions and obligations, while enabling you to keep better control over your assets by for example being able to retain your home and your car. While in an IVA you will be able to retain your employment and if you are self-employed you can remain in business for the full term of your IVA leading to higher returns for your creditors.
Your IVA will be binding on all your creditors, including dissenting creditors, provided that it is accepted by 75% of the creditors who opted to vote at the formal meeting of creditors. Voting rights are determined by the amount of debt you have with each creditor. One way to look at it is that each pound of debt is equal to one vote. You will achieve a higher level of realizations in an IVA than you would achieve in bankruptcy, leading to higher returns for your creditors. You will also incur lower costs in an IVA than you would incur in bankruptcy, again leading to higher returns for your creditors.
You will be subject to less publicity through all stages of an IVA than you would encounter in bankruptcy. For example, in an IVA there is no mandatory publication of your name in newspapers or other periodicals. Should your circumstances change significantly over the duration of your IVA, you can, with the agreement of your creditors, vary the terms of your IVA. There is also a trend towards minimal (and reducing) court involvement in IVAs. This benefits you and your creditors. The IVA process is well regulated so you will have a high level of protection from unscrupulous practices. On approval of your IVA, all creditors must stop contacting you, interest on your debts is frozen and all penalties and charges are stopped. All your debts are dealt with and written off in a known and finite time period – usually five years – but it can be shorter.
Your monthly payments in an IVA will be affordable. As an alternative to monthly payments you can enter a one-off IVA by making a single lump sum payment with a considerably shorter duration of perhaps less than one year. You do have to pay the set-up, supervision and disbursement costs of the IVA. However, these costs are taken from your monthly contributions to your IVA.
If creditors do not accept your IVA at the formal meeting of creditors, they are free to pursue other legal actions against you such as petitioning for your bankruptcy, obtaining court judgments against you or registering charges on your assets. Rather than accepting or rejecting your IVA proposal as it stands, creditors also have the option of modifying its terms at the outset. Such modifications often seek to increase your monthly contributions to your IVA and your IVA may fail during its term of supervision if you are unable to sustain such enhanced payments. Creditors may seek to limit the level of living expenses which you may claim in your IVA making it less generous than what is allowed in bankruptcy. This increases the possibility that your IVA may fail in supervision if you cannot reasonably live within the limits imposed. If you do not agree to the modifications proposed, then your proposal is deemed to be rejected.
The term of your IVA during which you must make payments is usually five years versus a maximum of three years in bankruptcy. You will not be allowed to borrow for the duration of your IVA, except with the express permission of your supervisor and/or your creditors. You credit rating remains poor even after completion of the term of your IVA. Your name will continue to appear on your files – as maintained by the credit reference agencies- for six years from the commencement of your IVA or from when your default was first registered.
When you have considered the pros and cons of an IVA for you, you should consider seeking professional advice from one (or more) of the many firms offering insolvency services. They use the services of specialists called Insolvency Practitioners who will provide you with free advice outlining all your options. You should also consider contacting CAB or the CCCS and you may even have to take independent legal advice, particularly when you own or partially own property such as a family home, so that the rights of other parties are protected. Such third parties include your partner or spouse (whether you are co-habiting or estranged) any co-owners of property and any dependents you may have.