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. Generally after 5 - 6 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 Practitioner (IP). Easierdebt will refer any IVA cases to The Debt People (www.thedebtpeople.co.uk)

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.

How does it work?
Debts are settled within a reasonable and fixed period of time (normally 5 - 6 years). Any interest and debt charges will be frozen and creditors will be prohibited from demanding additional payments. IVA Fees

Fees incurred for Individual Voluntary Arrangements are variable dependent upon the monthly contribution to the arrangement and the agreement that is reached with your creditors. Fees are made up of Nominees fees relating to assistance given to prepare your proposal and Supervisor fees which relate to the ongoing monitoring of your IVA. Fees are already included as part of your monthly contribution. The level of fees and the method of payment are both agreed by your creditors at the outset of the arrangement.

Nominees Fee

This is a fixed fee that will cover the work that goes into setting up your IVA:

• Creating your IVA proposal. This is the document which must be approved by enough of your creditors for your IVA to start. It defines the proposed terms of the IVA: how much you would pay, what each creditor would receive, etc.
• Setting up the creditors meeting. This is when your creditors will formally approve your IVA proposal, reject it, or request changes to it.
• Assessing any suggested changes. If any creditors have requested changes to your IVA proposal, your IP will advise you on whether you should accept those changes – or consider a different approach to your debt problems.

Your first few monthly payments (depending on what you have agreed with your creditors) will go towards paying the nominees fee before your creditors receive any money – so your accounts will go into arrears – or further into arrears – because your first two monthly payments will not go to your creditors.

Supervisors Fees

The supervisors fees will cover the ongoing supervision and maintenance of your IVA all the way through – so for five years, with a typical IVA. That means:

• Your Relationship Manager will deal with any day-to-day issues that arise, ensuring your IVA runs smoothly.
• Your IP will carry out regular reviews of your IVA and address any more serious issues that come up – if, for instance, your financial situation worsens, and you need your IP to arrange an IVA variation (a legally binding change to the terms of your IVA, designed to help you bring the IVA to a successful conclusion).

After the nominees fee has been paid, a percentage of each monthly payment will be taken as supervisors fees, as detailed in your IVA proposal.
Note: Keeping up with your monthly payments in an IVA is vital – if you fail to, your IVA may fail, leaving you liable for the remaining balance and any costs already incurred. Having said that, IVAs do provide an element of flexibility: you may, for example, be allowed to take a small break from your payments if you come up against unexpected costs (such as essential home repairs).
Our IVAs are provided by our sister company, The Debt People who are a licensed Insolvency Practitioners.

Once a decision has been made that an Individual Voluntary Arrangement - IVA may be 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 creditor who voted against the Individual Voluntary Arrangement - IVA represents more than 25% of the total debt you owe the Individual Voluntary Arrangement - IVA will fail. This is because an Individual Voluntary Arrangement - IVA will only ever be approved if 75% in monetary value is voted for. If any of the creditors don't vote, it is assumed that they will vote FOR the Individual Voluntary Arrangement - IVA.

The Individual Voluntary Arrangement - IVA will be legally binding. As long as you keep up the repayments, when the term of your agreement is finished, you will be 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.

The rules of an Individual Voluntary Arrangement - IVA state that providing 75% (in value terms) of those that have voted, vote to accept the proposals (with or without modifications) then the Individual Voluntary Arrangement - IVA is agreed and becomes legally binding on all other parties whether they voted or not.

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 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 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.

What are the costs of an IVA?

Typically once enough monthly payments have been made after the arrangement has been approved, a fee of £1,500-2,500 + VAT will be drawn for the initial work in preparing and circulating the proposal and holding the creditors' meeting depending on the complexity of the case.  Then once per year an annual supervision charge of typically 15% + VAT of all realisations going in to the IVA.  The annual charge covers the cost of monitoring the monthly payments, general correspondence, and sending a report and dividend to the creditors once per year.  Where two partners propose two IVAs in respect of joint household debts the initial cost is likely to be £3,000 + VAT with again the annual cost being set at 15% of realisations.

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.

Will I be able to get a mortgage or further loans/finance/effect on credit rating?

This will greatly depend on your credit status, which will be adversely affected by your participation in any IVA. The affect on your credit rating will last for 6 years.

What is the effect of IVA failure or an IVA failing?

We receive a lot of calls and emails from the public asking; "What is the effect of IVA failure or an IVA failing?".

If the IVA falls so much into arrears that nothing can be done to bring it back on track then the IVA Supervisor will have no choice but to issue a Notice of Termination. This will formally bring an end to the IVA.

If the IVA fails then the Creditors will be able to chase you for the remaining debt, as you will no longer have the protection afforded to you by the IVA.

There is also the risk that Creditors or the Insolvency Practitioner could petition for your Bankruptcy.

IVA Example

At this point, we must point out again that an IVA is very much an individual arrangement and that no two are the same. This is just an example aimed to help you understand how they work.
There are two kinds of fee involved in an IVA – the Nominees fee and the Supervisors fees. Here is an example of the fees and payments on a typical clients IVA:

Typical monthly repayments (60 months)	£300
Total paid by borrower (including fees)	£18,000
Total unsecured debt written off on completion	£13,000 (42%)
Nominees fee	£1,704
Supervisors fees	£3149
Supervisors costs	£290

Example based on a typical client, with approx. £31,000 of unsecured debts who completes a 5-year IVA and has no equity in any property.
As a formal insolvency procedure, an IVA is a legally binding agreement with your unsecured creditors and requires an Insolvency Practitioner (known as an IP).
An IP is a qualified professional with the experience to handle insolvency cases. They will be responsible for ensuring your IVA is fair to both you and your creditors all the way through.