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What is an individual voluntary arrangement (IVA)?
If you are unable to afford your debt repayments, an IVA allows you to set up a new payment arrangement with your creditors. It is a formal and legally binding agreement between you and your creditors so you can pay back your debts over a period of time.
This means it’s approved by the court and your creditors have to stick to it. Once an IVA has been approved, your creditors are legally obliged to cease all legal action, freeze all interest and stop adding any late payment charges.
How it works
An IVA must be set up by a qualified person, called an insolvency practitioner.With a predetermined ‘fixed’ repayment period normally consisting of 60 months, an IVA lets you make payments based on affordability rather than their contractual obligations.
On successful completion of the IVA, the creditors are legally obliged to write-off any outstanding debt, leaving you completely debt free.
Who can apply?
Anyone who lives in England, Wales or Northern Ireland (or has done so within the last 6 months) can apply for an Individual Voluntary Arrangement. If you live in Scotland, there is a different arrangement called a Protected Trust Deed.
Whether you are employed, self-employed, a homeowner or a tenant, you can apply for an IVA. You don’t need to have missed any of your contractual debt repayments, but the prospect of doing so should be imminent.
Technically, there is no minimum debt level required to qualify for an IVA. However, general opinion suggests you should have more than £10,000 in unsecured debts.
An IVA can only be used against unsecured debts. These are debts like:
Basically, an unsecured debt is a debt which isn’t ‘secured’ against an asset. This means creditors do not have the right to repossess any property in the event of a breach of terms of the loan agreement.
There are also other types of debts that can be included in an IVA:
As your insolvency practitioner, we will deal with your creditors for you – for the entire process. That means, you will never have to deal with the creditors directly during the lifetime of your IVA.
If you do decide to set up an IVA, we will work out a repayment plan you. This could be monthly payments, a lump sum or a combination of both. The repayment plan will be based on an amount you can reasonably afford and your creditors will need to agree it.
If you’re making monthly payments, the IVA will usually last for 5 or 6 years. Any repayments will be paid directly to your insolvency practitioner (that’s us) and we will distribute the money to your creditors. If the payments you make aren’t enough to pay your debts in full by the end of your IVA, you won’t have to pay the rest, but we will advise you about this.
You make affordable monthly payments, usually over five or six years.
If you’re a homeowner you’ll usually be able to keep your home, as long as you maintain the mortgage payments and any secured loans on your property.
There are no set up fees to be paid before your IVA is agreed
There are fees once your IVA is in progress, but these will be included in your monthly repayments and will be set by your creditors
If you have a lump sum to offer, this can be paid as a one-off ‘full and final’ settlement, or a combination of a lump sum payment followed by monthly payments
Once you’ve made your final payment any remaining unsecured debt is written off and your creditors can’t pursue you for payments
No, you don’t need to attend court. For the vast majority of applicants, the IVA application process is conducted at ‘arms length’.
This means that, unless you would prefer otherwise, all your dealings will be with us (your Insolvency Practitioner) via telephone and/or email.
You will not have to attend court and you will not be confronted by your creditors.
Since the introduction of the IVA Protocol in February 2008, most high street creditors have become very familiar with IVAs and, in most instances, are supportive of them.
They each have a well documented company policy which outlines their stance on IVA proposals.Occasionally, a creditor may be in the process of taking enforcement action at the time of application and, if necessary, we, as your Insolvency Practitioner can intervene.
In that case, we can apply for an Interim Order. This is a court order which forces the creditor to halt legal action until after the outcome of the creditors’ meeting has been established.
Yes, technically speaking, you can enter an IVA if your are currently unemployed.
However, it’s likely that other surrounding factors will determine whether an IVA is the most suitable solution for you, such as your employment prospects, the amount you can afford to repay and the level of your debt.
We think it’s best to have a chat with our advisors to fully understand your choices and the obligations that come with an IVA, before you commit yourself.
No, unlike Bankruptcy, an IVA protects property and the equity held within it. As a result, an IVA applicant will not be required to sell their home.
Instead, creditors will demand that you try to release any equity at a pre-arranged time during the IVA term.
Fortunately, creditors’ expectations will be limited by the IVA protocol meaning they can’t force you to sell your home if you can’t release equity from it.
Instead the IVA will be extended for 12 months in lieu of any equity that can’t be released.
If you’re still feeling confused, feel free to drop us an email or give us a call.
Need to speak to one of our financial experts or refer a client?
Claire Middlebrook, Scott Bastick and Katie McLachlan are authorised to act as insolvency practitioners in the UK by the Institute of Chartered Accountants of Scotland
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