How an IVA works in practice
What is an IVA is a question we are asked many times as it’s very easy to get confused with the different types of information available.
In practical terms an IVA (or individual voluntary arrangement) is an agreement between you and the people you owe money to which sets out how much you will pay back towards what you owe and how much will be written off. This then becomes a legally binding agreement that all parties must adhere to.
The process itself is straightforward and consists of six basic stages:
This is the first and most important part of the process. Entering an individual voluntary arrangement is a serious decision and it’s crucial to ensure you get the expert advice you need to make the right decision.
OF AFFAIRS IS
The statement of affairs is a financial assessment of your circumstances and takes account of your assets and liabilities along with a breakdown of your income and expenses.
IS PUT TO YOUR
The proposal to your creditors, which is drafted by an insolvency practitioner, is based on the overview of your statement of affairs and details what you can afford to repay and what should be
VOTE TO ACCEPT
The creditors will vote at the creditors meeting and if creditors representing 75% of your debt vote in favour of the proposal then it will be approved and all parties are then bound by the agreement.
A Supervisor is appointed to administer and oversee the IVA to ensure all legal procedures are followed and that the terms of the IVA are being met. The Supervisor is usually the same IP who drafted the proposal.
The IVA is registered on the Insolvency Register and will run its course which is usually for 5 years. As long as you have abided by the terms you will then be discharged and the rest of your debt is written off.
Do I qualify for an IVA?
There are a number of specific qualifying criteria but no strict rules in terms of what you owe in order to qualify for an individual voluntary arrangement. There are official guidelines although each case is generally taken on its own merits.
The overriding aspect to individual voluntary arrangements is that in order to qualify you must be insolvent which means that you are unable to repay your unsecured debts, such as loans and credit cards, in a reasonable timescale and the money you owe must be more than the value of your assets.
Other criteria include:
IVAs apply to the UK excluding Scotland
You must be resident in England, Wales and Northern Ireland as individual voluntary arrangements are not available in Scotland where the equivalent is a Scottish trust deed.
The guidelines indicate a minimum level of £15,000 but IVA’s do proceed with amounts as low as £5,000. Your debts must consist of a minimum of three lines of credit from at least two lenders.
You must be able to make a reasonable payment to your creditors
Your income needs to be stable so that creditors are confident you can afford to meet the monthly repayments agreed which normally last for five years.
Creditor voting and agreement
The IVA must be approved by creditors who account for at least 75% of the total amount you owe.
What your creditors will accept
Creditors will be looking to recover at least 30% of what’s owed which means up to 70% can typically be written off.
The IVA must show higher return to creditors than bankruptcy
To ensure creditor acceptance the proposed IVA must realise more than they would get if they made you bankrupt.