What is an Individual Voluntary Arrangement (IVA)?

Below is a list of questions which most clients ask when dealing with us. If your question you want answered is not in this list, do not hesitate to contact us and we will gladly answer it for you. An Individual Voluntary Arrangement - IVA is a formal agreement between you and your creditors where you will come to an arrangement with people you owe money to, to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe then generally after 5 years your debt is classed as settled.  Due to its formal nature, an Individual Voluntary Arrangement - IVA has to be set up by a licensed professional called an Insolvency Practioner (IP)

Its Purpose?
It is a legally binding agreement between you and your creditors (people you owe money to). It helps those in financial difficulties to make a formal proposal to settle their debt.

What Are The Arrangements?
Monthly payments are based on an affordable disposable income. Once the final payment is made, any outstanding debt is legally written off. The arrangement can write off up to 65% of your debts (subject to your circumstances).

How does it work?
Debts are settled within a reasonable and fixed period of time (normally 5 years). Any interest and debt charges will be frozen and creditors will be prohibited from demanding additional payments.

Once a decision has been made that an Individual Voluntary Arrangement - IVA is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a repayment amount will be agreed with you. Once proposals have been drawn up you will need to check and sign these and return them to your Insolvency Practitioner (IP).

An application may then be made to the court for an Interim Order. Once this is in place, no creditors will be able to take legal action against you. You may be asked to attend your creditors meeting but this rarely happens, normally you are asked to be contactable by phone on the day.

For an Individual Voluntary Arrangement - IVA to be approved, creditors will be called upon to vote either for or against the arrangement. If only one creditor votes "for" the Individual Voluntary Arrangement - IVA, the Individual Voluntary Arrangement - IVA will be approved. However, if only one creditor votes against the Individual Voluntary Arrangement - IVA and they represent less than 25% of your total debt, the meeting will be suspended for a later date and other creditors who did not vote will be called upon for their vote.

If the required numbers of creditors vote in favour of the Individual Voluntary Arrangement - IVA, the proposal will be approved and become legally binding. As long as you keep up the repayments, when the term of your agreement is finished, you will be free from these debts regardless of how much has been paid off.

During the period of your arrangement your financial situation will be reviewed regularly to see if there has been any change in your circumstances.

It is very important that consumers do not confuse an Individual Voluntary Arrangement - IVA with a Debt Management Plan, which are not legally binding.

Most Individual Voluntary Arrangement - IVA cases are based around one, affordable, monthly, payment, over a period of 60 months. This one affordable payment is based on your earnings minus your expenses.

An Individual Voluntary Arrangement - IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP) who then presents it to creditors at a creditors meeting.

In the case of a consumer Individual Voluntary Arrangement - IVA it is unusual for any creditors or their representatives to attend the creditors meeting as most prefer to vote by fax or by post.

When an Individual Voluntary Arrangement - IVA is accepted the IP's role becomes that of supervisor, monitoring the Individual Voluntary Arrangement - IVA's progress and ensuring that the terms and conditions that were agreed to at the creditors meeting are properly adhered to.

It is the debtor's responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with terms and until the successful completion of the Individual Voluntary Arrangement - IVA. It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the Individual Voluntary Arrangement - IVA.

Upon the successful completion of the Individual Voluntary Arrangement - IVA the debtor will be considered debt free even though they may not have actually paid off all of their debts in full. Any outstanding balances are written off (known as a composition of debts) and the debtor is then free to make a fresh financial start.

It is worth noting that if you do enter into an Individual Voluntary Arrangement - IVA with your creditors and you have an endowment policy linked to your mortgage then you may be expected to cash it in and pay the proceeds into the arrangement. Likewise, if your property has a reasonable amount of equity then it is likely that a some of it will have to be released at sometime during the arrangement (usually the end), so it can be paid to creditors. Drastic as this may sound it can be a deciding factor in whether an Individual Voluntary Arrangement - IVA is approved by creditors and a realistic way in which a debtor can retain their property.

Why Avoid Other Debt Solutions?
There are many organisations who advertise debt solutions. Their biggest claim is to be able to reduce monthly loan and credit card payments to a single affordable amount. Such reductions are often possible to achieve and can provide peace of mind. However, these agreements are normally informal “gentleman’s agreements” and are not legally binding.
 

What Are The Hidden Problems with DMP?

• Although they may greatly reduce your repayments each month, you will still have to pay all of your debt back. This could take a very long time. Example: A debt of £20,000 with reduced monthly repayments of £200 a month will leave you repaying your debt for at least 9 years.
• Your creditors do not have to stop adding interest and late payment charges. Some may for a short period (perhaps 6 months).
• Creditors may want to review the situation. This means that the reduced amount paid each month may only just cover the extra interest being added. If this is the case, then the debt will never be repaid.
• Your creditors can break the agreement at any time and asked for increased payments or add further interest.
• Not knowing where you stand with creditors, may have you always waiting for that next payment demand letter to come through the post.

Why use an IVA?
Besides overcoming the problems outlined in Why avoid other Debt Solutions? An IVA offers a real solution, a “Light at the end of the Tunnel”, where informal debt solutions as described above do not.

• You have an agreement with your creditors to make a single reduced payment each month.
• It lasts for a sensible period of time (normally 5 years).
• Once agreed, creditors are not allowed to add further interest or charges to your accounts by law.
• The agreement is fixed, meaning that creditors cannot randomly demand changes to it.