If you have money worries and feel that you may be insolvent, you might like to learn about an Individual Voluntary Arrangement (IVA) and how an IVA could make life better for you. Remember that having money worries in itself is not sufficient to qualify you for an IVA. You must in fact be insolvent.
That means that you must be unable to pay your debts as they fall due and that if you were to sell any assets you might have, such as a house, would realise too little money to pay off your due debts, even with the help of your income.
So let us assume that you have debts and can’t afford to make the agreed payments to your creditors. However you do want to reach agreement with them to repay what you can afford. Provided you have a regular income, an IVA may enable you to reach agreement with creditors to repay some of your debts and to have the rest written off in a reasonable time period. An IVA 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. It is binding on all parties – you and your creditors. At the end of the agreed life of the IVA, provided you have adhered to the terms and conditions of the IVA agreement, all of your debts are discharged. Here are some of the frequently asked questions.
Must I include all my debts in my IVA proposal?
With the exception of 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 my creditors agree to accept my IVA proposal?
No. All your unsecured creditors have the right to vote on your proposal but in practice not all creditors exercise this right. Of those unsecured creditors who do exercise their right to vote, at least 75%, as measured by the value of your debts to them, must accept your proposal for an IVA to be deemed to be accepted. Furthermore, the creditors who do not vote are still bound by the decision taken by the creditors who did vote.
What about the IVA being binding?
All accepted IVA’s are registered with the government. The main legislation governing the formation and conduct of IVA’s is governed by the Insolvency Act (1986) together with some more recent legislation.
How much will I have to pay into my IVA fund?
Only what you can afford. An income and expenditure statement is prepared and your monthly payment will usually be the difference between your income (what you earn plus any pensions, benefits or other unearned income that you receive) and your expenditure (your living expenses, including mortgage and car HP payments and the living expenses of your dependants such as your family members).
For how long will I have to make these monthly payments?
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 costs I would incur in an IVA?
The administration costs of the IVA are taken from the monthly payments you make into your IVA. Creditors receive the balance of the monthly payments you make. You have to pay nothing more yourself.
Can I get an estimate of these administration costs?
Not just an estimate. Your IVA provider must include a transparent summary of the costs of the IVA in the IVA proposal itself and these will usually be fixed over the duration of the IVA or if not fixed they are easily calculated. So, you will know up front what the costs of the process will be over the full life of the IVA.
Where can I get advice on an IVA and what will it cost me?
There are many reputable 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 which are funded by creditors. Once an IVA is approved by creditors, it is supervised and administered by a licensed Insolvency Practitioner (IP). This is requirement of the law. The IP charges no fees and receives no income until the IVA is accepted by creditors. The IP’s fees then come out of the payments agreed with the creditors. If the creditors do not accept the IVA proposal, the IP receives no fees whatsoever and you, the debtor, have nothing to pay.
What other options do I have?
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. It may even be possible to manage your financial problems a little differently and you may find that you are not insolvent after all. In such a scenario you may be able to manage your own financial affairs yourself. Your IP should explain all the available options to you and indicate which are the most favourable both for you the debtor and for your creditors.
How can I get advice on all of my options?
A good first step is to speak to a debt advisor to find out 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. A properly qualified debt advisor will assess your situation and run through all possible options available to you. This will allow you to make an informed decision on the best course of action for addressing your debts. A good debt advice or insolvency firm will make sure you are getting the best advice and that advice is consistent. Never pay for advice! You should not have to pay anything to get advice on your options.