INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
WHAT IS AN INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)?
An IVA or Individual Voluntary Arrangement is a formal legally binding agreement with Creditors. It allows someone who is in financial difficulty to make a formal proposal to settle his/her debts within a reasonable and fixed period of time – normally 5 years.
The IVA involves making monthly payments based on your affordable disposable income. Once the final payment is made, any outstanding debt is legally written off. As such, the IVA offers a solution with a specific end date so you know exactly where you stand and when your debt problem will be over for good!
Why would your creditors accept such an agreement? The answer is that they will compare what they will be repaid directly with what they would get if you declared bankruptcy. This would normally be far less. As such the creditors are prepared to accept something rather than nothing – half a loaf is better than no bread!
The IVA is legally binding. The agreement is governed by a part of the law called the Insolvency Act 1986. This means that once in place, the creditors cannot change their mind or go back on the deal.
ADVANTAGES OF INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
· Up to 75% of your debt may be written off although this amount may vary depending on your circumstances.
· You will make a single affordable monthly payment.
· There will be no need to make multiple payments to different creditors.
· All future interest and charges are frozen.
· The agreement is legally binding. This means that once agreed, creditors must stick to the agreement and they can take no further action against you. In addition, actions taken in the past such as County Court Judgements will be overturned.
· The IVA is a private and discreet procedure. No one is told about the agreement other than the creditors themselves. The IVA can be used by professionals, forces personnel and the police without damaging career prospects.
DISADVANTAGES OF INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
· If you enter into an IVA this will be recorded on your credit file. This means that you will not be able to take further unsecured borrowing for the duration of the IVA (although it is possible to take a mortgage or re-mortgage in certain circumstances).
· Once the IVA is completed (normally after 5 years) you can borrow again. However, it may take some time for your credit rating to repair.
· If you enter into an IVA and then decide not to maintain your agreed payments, then you could risk being made bankrupt. However, if the amount you can afford to pay reduces through no fault of your own, it may be possible to re-negotiate your IVA payments.
· If you are a home owner, during the course of the IVA, you may have to release available equity from your property so that the overall settlement you offer to your creditors is increased.
Individual Voluntary Arrangement (IVA) - Frequently Asked Questions
Q. What is an Individual Voluntary Arrangement (IVA)?
A. An IVA or Individual Voluntary Arrangement is a formal legally binding agreement with Creditors. It allows someone who is in financial difficulty to make a formal proposal to settle his/her debts within a reasonable and fixed period of time – normally 5 years. The IVA involves making monthly payments based on your affordable disposable income. Once the final payment is made, any outstanding debt is legally written off. As such, the IVA offers solutions with a specific end date so you know exactly where you stand and when your debt problem will be over for good!
Q. Who can qualify for an IVA?
A. Anyone in England, Wales and Northern Ireland with an acceptable level of disposable income, and debts over £15,000, with 3 or more creditors that they cannot pay. However, your assets as well as your liabilities will need to be considered to decide on an appropriate solution.
Q. How long does an IVA last?
A. An IVA would normally last for five years, however it is possible to complete it in a shorter period e.g. were a lump sum is introduced into the arrangement in full and final settlement.
Q. Why would your creditors accept such an agreement?
A. The answer is that they will compare what they will be repaid directly with what they would get if you declared bankruptcy. This would normally be far less. As such the creditors are prepared to accept something rather than nothing – half a loaf is better than no bread! The IVA is legally binding. The agreement is governed by a part of the law called the Insolvency Act 1986. This means that once in place, the creditors cannot change their mind or go back on the deal.
Q. Will the IVA prevent my creditors taking further recovery action?
A. Yes. Once the IVA is in place, you are protected from all further recovery action by your unsecured creditors providing you agree to the terms of the arrangement.
Q. Can I enter an IVA if I already have CCJs against me?
A. Yes. Entering into an IVA even offers you a way by which you can avoid further recovery action after a creditor has obtained a CCJ against you.
Q. Does an IVA cover all of my debts?
A. No. An IVA can only cover your unsecured debts and arrears.
Q. Is this a loan?
A. No. An Individual Voluntary Arrangement is a legal process whereby you can agree with your creditors to repay them what you can afford. This may result in paying back less than you actually owe.
Q. How do I know how much I will have to pay through my IVA?
A. This is agreed once we have carried out a detailed review of your income and priority expenses (e.g. mortgage, rent, council tax. utilities, food etc) and have negotiated with your creditors. But the whole point of an IVA is to make your new monthly repayments affordable.
Q. What is the difference between a secured and unsecured debt?
A. A secured debt is a debt secured against an asset that you own. Typical secured debts will be a mortgage, a secured loan, a car loan, etc. An unsecured loan is any loan not secured on an asset, such as a bank overdraft, a personal loan, a credit card, store card, etc.
Q. Will I be credit checked before acceptance?
A. No. Since you will not be borrowing any money, there will be no need for a credit search.
Q. Can an individual creditor refuse to accept an IVA?
A. Yes, but only if he has more than 25% of the debt voting at the creditors meeting. Once the IVA has been accepted by vote at the creditors meeting, all creditors are bound by law to accept the arrangement.
Q. Do creditors have to accept an IVA?
A. The decision to accept or reject an IVA is made by a vote of your creditors at a creditors meeting. You need to get 75% acceptance by debt value at that meeting for the IVA to go ahead. If less than 75% by debt value vote to accept the IVA, the IVA will fail.
Q. Do I have to be in full time employment?
A. No. To enter into an IVA, you only need to have a surplus of income above what you need to live on.
Q. Do I have to tell my partner?
A. You will almost certainly have to tell your partner if you are entering into an IVA.
Q. Does it make a difference if I am a homeowner or tenant?
A. No. It makes no difference whether you are a tenant or homeowner or even if you are still living with your parents.
Q. Can a creditor take further recovery action before the IVA is approved?
A. Yes, but you can apply to the courts for an Interim Order to stop any of your creditors taking further recovery action until the outcome of your creditors meeting is known.
Q. Can I cancel the IVA once it is set up?
A. No. An IVA is a legal process and, once it is set up, you cannot just cancel it if you change your mind.
Q. How long does it take to set up an IVA?
A. Providing everything is standard, it takes typically between 6 and 8 weeks to set up an IVA.
Q. Will I need to pay fees to set up an IVA?
A. Fees are payable but your creditors will normally agree that they be deducted from your agreed payments as an allowable cost of the arrangement.
Q. What happens if I just stop paying into the IVA?
A. If you fail to keep to the arrangement, your supervisor in the IVA (the insolvency practitioner) has the right to apply for you to be declared bankrupt and for your creditors may petition for your bankruptcy.
Q. What happens if the IVA is not approved?
A. You will have to come to an alternative arrangement with you creditors to repay your debts. We may be able to offer you an alternative solution.
Q. Will my credit rating be affected?
A. By the time they approach us, most people have defaulted on their credit commitments under the consumer credit act as they cannot afford the repayments, and therefore their credit rating has already been affected. Whatever solutions is then used to solve the problem will not repair their credit rating, this will only happen once creditors have been repaid and a new history of payments shown.
Q. What if my circumstances change?
A. If you are unable to maintain repayments because of changed circumstances, your supervisor in the IVA can request a variation to reflect your new circumstances.
Q. Will my home be safe?
A. When you are in an IVA you won’t usually have to sell your property. However you may be required to release equity by taking out a remortgage in the last year. This is however based on affordability along with other criteria required by lenders.
Q. What if I have a lot of equity in my property?
A. If this is the case then an IVA may not be suitable and we will advise you on an alternative debt solution.
Q. Can I still have a bank account if I’m in an IVA?
A. Yes you can. However if you owe money to your current bank it may be necessary to open an account with a new bank so that your debts are all dealt with in the IVA.
Q. Can I set up an IVA if a Bankruptcy Order has been made against me?
A. If the Bankruptcy Order has already been issued an IVA can still be proposed to your unsecured creditors, and if accepted the bankruptcy order will be annulled.
Q. Will my creditors stop calling and writing to me?
A. Yes. Once your IVA is accepted, your creditors are legally bound by the arrangement and will no longer continue to request payments, telephone you or send you letters. All correspondence will be dealt with by Debtfocus and as long you make your agreed monthly payment, you will be free from debt in 60 months legally.
Q. Will interest and charges be frozen?
A. Yes. One advantage with an IVA is that, once your proposal is accepted, all interest and charges will be legally frozen from that date.
Q. What happens after I have cleared my IVA in 5 years?
A. You will have become debt free and can get on with your life without debt.