There is a reason why the Government decided to create a legal process, called an IVA (individual voluntary arrangement), which provides a structured and straight forward debt management process for people, enabling them to put a stop to debt problems that are out of control. Debt problems are now part and parcel of everyday life and there are many occasions where people’s financial problems, for a whole range of reasons can become unmanageable. It is in these instances that people must be able to resolve the problem and hence the reason for a formal and legal solution to do so.
An IVA is a process recognised by the courts where the debtor (the person owing the money) enters into an agreement with their creditors (the people or organisations who are owed the money) to make a payment that they can afford over a period of time which is usually five years and then the remainder of their unsecured debt is written off. The process is designed to provide the debtor with an affordable way to repay some of their debt and write off the rest and so make a fresh start free of debt, as well as enabling the creditor to realise some payment toward the debt owed.
Administering the IVA process
Because it is a legal process, an IVA must be administered by a licensed insolvency practitioner (often referred to as the Trustee) who will take responsibility for the whole process and ensure that all legal guidelines and requirements are followed. The Trustee will provide IVA advice and will deal with the debtor’s creditors and it is the trustee with will put together the formal proposal made to creditors detailing the amount proposed to be paid and the amount to be written off. This is an important part of the process as unless the creditors agree to the proposal then the IVA can’t proceed. An advantage of how the IVA process works here is that the Trustee will always deal with the creditors which helps to facilitate the process and minimises any stress and worry that may have built up for the debtor over previous dealings with their creditors.
An IVA is an insolvency solution and is an alternative to bankruptcy that provides flexibility for the debtor. So for example it gives the debtor more say in how their possessions and assets are dealt with, it can allow the debtor to keep control of specific assets such as their home and it can allow a contribution from the debtor’s ongoing employment or business trading.
Proceeding with the IVA
Once the proposal is accepted by the creditors then the IVA can be formally registered and is then legally in place. This binds both the debtor and creditors to the agreement so the creditors cannot pursue the debtor and cannot take any legal action against the debtor. It also means that the debtor must abide by the terms of the agreement and continue to make the agreed payments until the end of the agreement where they will then be discharged. If the debtor does not comply with the terms and conditions then it could result in them being made bankrupt.