What is an IVA?
Introduced into legislation as part of the Insolvency Act in 1986, IVAs have become a very popular way for people to deal with their personal unsecured debt problems, but what is an IVA, and how does it work?
An IVA, or Individual Voluntary Arrangement to give it its full title, is a formal debt solution for people with a severe unsecured debt problem, who want or need to avoid being declared bankrupt by their creditors.
An IVA provides a formal structure to enable you to make repayments to your creditors based on affordability rather than at the previous contractual arrangements. You agree to pay your creditors as much as you can afford throughout the term of the IVA but no more, whilst, in turn, they agree to accept your payments rather than forcing you in to bankruptcy and promise to legally 'write-off' any money still out standing at the end of your arrangement if you successfully reach the end of the IVA term.
Who can apply for an IVA
Anyone with a severe unsecured debt problem can apply for an IVA, but they are particularly helpful to people who own assets, because an IVA offers an opportunity to try and protect assets which would be otherwise vulnerable in bankruptcy.
The same could be said for people trying to protect their income, because an IVA is particularly suitable if you are in a profession that prohibits bankruptcy as a debt solution, such as accountants, bank employees, lawyers, civil servants, Armed Services personnel, Prison Officers and Police Officers. An IVA acts as a formal alternative to bankruptcy, allowing you to reach an amicable agreement with your creditors without the fear of professional sanctions being taken against you.
You need to have a 'provable' income to be able to apply for an IVA. Therefore, you can be self-employed or an employee, be a limited company director or in a partnership, or you could even be unemployed or retired and living off your pension. If you are unsure about whether your income qualifies you for an IVA, just give one of our IVA experts a call on 0800 856 8569 and we'll discuss it with you.
How does an IVA work?
An IVA works by allowing you the chance to repay more to your creditors through the structure of the IVA compared to the return creditors could expect if they made you bankrupt.
Because an IVA is a mutual agreement between you and your creditors, you keep more control over your financial affairs than you would otherwise experience in bankruptcy.
The IVA also ensures you have the chance to put forward your proposals on how the equity in your assets ought to be introduced for the benefit of your creditors rather than, say, through a forced sale, as you would experience in your bankruptcy.
To ensure your IVA is conducted properly it will be overseen, or administered, by an Licensed Insolvency Practitioner (IP).
IPs are often accountants, but are always highly qualified financial experts who specialises in insolvency law and they are very heavily regulated to ensure they adhere to all the legal requirements that envelop IVAs. It is up to the IP to ensure that each IVA is conducted along the terms laid out in the IVA proposal. They must make sure all parties are sticking to the IVA and fulfilling their side of the deal.
Once your IVA has been agreed by the necessary majority your creditors, i.e. 75% in debt value terms of those creditors that vote, it provides you with immediate protection. It immediately stops your creditors from taking any further legal action against you for the recovery of your unsecured debts, and this even includes those creditors that may have initially voted against your IVA.
What's more, all creditors are legally obliged to stop charging interest on the outstanding balances of your debt, once the IVA has begun. It also ensures they refrain from adding late payment charges and other costs, which might otherwise have continued to increase the outstanding debt levels after the IVA had begun.
Each IVA has a fixed term of normally, 5 years with a possibility of a 12 month extension if your IVA is subject to an equity clause. However, in the correct circumstances, it is possible to have an IVA consisting of just one payment. This is often referred to as a Full and Final Settlement IVA, or a Lump Sum IVA, something of a speciality for us here at IVAorg
Once your IVA has successfully completed, any outstanding balances on your unsecured debts are written off by your creditors under the terms of your IVA, even though you may have only repaid a fraction of your original debt.
What should I be aware of?
Entering into a legally binding agreement is a serious business and proper consideration should be given to all aspects as part of your decision-making process.
It is, therefore, worth noting that your credit rating will be damaged as a result of entering into an IVA for a period of 6 years, starting from the day the IVA begins.
You will be required to undergo an annual review on each anniversary of your agreement, during which an assessment is undertaken by your insolvency practitioner to make sure your IVA is on track. During your annual review, your affordability will be reassessed to determine whether your ongoing IVA payments need to be adjusted.
If you are a homeowner or landlord, any equity in your property will be taken into account as part of your arrangement and you will be required to comply with an 'equity clause' in your arrangement before your IVA can be brought to a successful conclusion.
If you enter into an IVA, your name will be added to the Insolvency Register for the duration of your arrangement. The register is a public record, listing all active insolvencies in England, Wales and Northern Ireland and, as such, can be searched freely by any member of the public.
It is also worth noting that, as part of your arrangement, you will be required to voluntarily refrain from obtaining further credit until the IVA has successfully concluded.
How do I apply for an IVA?
IVAorg can process all IVA applications with a debt level above £10,000, owed to more than 2 different creditors. To apply, simply call 0800 856 8569 to talk to an IVA expert now or fill in the form below to request a call at a time that suites you.
What's more, we do not charge any upfront fees for our services. So feel free to arrange a private and no obligation telephone consultation with one of our IVA experts to help you establish whether an IVA would be in your best interests.
Alternatively you could take advantage of our free debt report and see if an IVA is a viable solution for you.