Using an IVA As a Form of Debt Management
An Individual Voluntary Agreement (IVA) is designed as an alternative to bankruptcy.
An IVA is a way of debt management for when you run into substantial debt problems.
IVA's were first introduced in 1986 and were originally designed as a way for small businesses with financial problems to avoid being made bankrupt.
No longer limited to businesses, today an IVA can be taken out if you have unsecured debts of at least £20,000 and you live in England, Wales or Northern Ireland.
IVAs aren't available in Scotland; instead the nearest equivalent is a Protected Trust Deed.
A legally binding contract, the IVA will be set up through the county court, between you and your bank or credit card company.
An IVA cannot be set up yourself; instead you will need the help of an Insolvency Practitioner (IP) When taking out the IVA, the IP will consider your assets and income to assess what you can pay as an initial lump sum and how much you can afford to pay each month.
The IP will then put together a proposal to show all of your creditors the best payment plan you can offer them.
Once the proposal has been put together, the Insolvency Practitioner can apply to the county court for an Interim Order.
This order will stop creditors from beginning bankruptcy proceedings or taking any other action without permission from the court.
The proposal put together by the IP, will then be sent to your creditors for consideration.
For the IVA to be granted, 75% of your creditors "by value" will need to agree to the proposal.
As an IVA is determined "by value", if the company you owe the most money to, rejects the Proposal, then the IVA will be unlikely to be granted.
If an IVA is agreed, interest on debts will be frozen for the duration of the arrangement and creditors will not be allowed to contact you regarding the debts.
A standard IVA is set up to last for five years or 60 months.
Providing you make all 60 monthly payments, the rest of the debt will be cancelled.
Advantages of an IVA - IVA payments are based on what you can afford realistically - Selling your house is not a normal requirement - Unlike bankruptcy, there are no work restrictions - becoming bankrupt excludes you from certain professions including accountancy and practicing as a solicitor.
You also cannot join the armed forces or the police force and are restricted from becoming a company director or a local councilor - Provided you keep to the plan and are able to remortgage your home for up to 85% of the value, the remainder of your unsecured debts you cannot repay are written off - Once an IVA has been agreed, all your creditors are bound by the terms - As long as you meet the payments agreed, your debts will be frozen, you will be protected from any further court action and creditors will stop contacting you about your debts Disadvantages of an IVA - Entering an IVA is a substantial commitment and are only suitable for people who can make every monthly payment throughout the duration of the arrangement - There is a high cost involved with setting up an IVA and you may have to pay an upfront fee - An IVA is only available to people who do not have enough equity in their home to cover all their debts - An IVA must be agreed by 75% of your creditors in terms of value you owe not number of creditors, so if the company you owe the most money votes against it, the IVA will most likely fail - Not all debts can be brought into an IVA, debts that can are overdrafts, personal loans, credit and store cards, student loans and catalogue debts - An IVA will affect your credit rating and will appear on your credit file for 6 years - If the IVA fails, you may still end up being made bankrupt - Banks and credit card companies are very strict with what counts as essential, holidays, gifts and gym memberships will be regarded as luxuries and won't be able to be included in your budget - Minimum debt is £25k single/£40k joint
An IVA is a way of debt management for when you run into substantial debt problems.
IVA's were first introduced in 1986 and were originally designed as a way for small businesses with financial problems to avoid being made bankrupt.
No longer limited to businesses, today an IVA can be taken out if you have unsecured debts of at least £20,000 and you live in England, Wales or Northern Ireland.
IVAs aren't available in Scotland; instead the nearest equivalent is a Protected Trust Deed.
A legally binding contract, the IVA will be set up through the county court, between you and your bank or credit card company.
An IVA cannot be set up yourself; instead you will need the help of an Insolvency Practitioner (IP) When taking out the IVA, the IP will consider your assets and income to assess what you can pay as an initial lump sum and how much you can afford to pay each month.
The IP will then put together a proposal to show all of your creditors the best payment plan you can offer them.
Once the proposal has been put together, the Insolvency Practitioner can apply to the county court for an Interim Order.
This order will stop creditors from beginning bankruptcy proceedings or taking any other action without permission from the court.
The proposal put together by the IP, will then be sent to your creditors for consideration.
For the IVA to be granted, 75% of your creditors "by value" will need to agree to the proposal.
As an IVA is determined "by value", if the company you owe the most money to, rejects the Proposal, then the IVA will be unlikely to be granted.
If an IVA is agreed, interest on debts will be frozen for the duration of the arrangement and creditors will not be allowed to contact you regarding the debts.
A standard IVA is set up to last for five years or 60 months.
Providing you make all 60 monthly payments, the rest of the debt will be cancelled.
Advantages of an IVA - IVA payments are based on what you can afford realistically - Selling your house is not a normal requirement - Unlike bankruptcy, there are no work restrictions - becoming bankrupt excludes you from certain professions including accountancy and practicing as a solicitor.
You also cannot join the armed forces or the police force and are restricted from becoming a company director or a local councilor - Provided you keep to the plan and are able to remortgage your home for up to 85% of the value, the remainder of your unsecured debts you cannot repay are written off - Once an IVA has been agreed, all your creditors are bound by the terms - As long as you meet the payments agreed, your debts will be frozen, you will be protected from any further court action and creditors will stop contacting you about your debts Disadvantages of an IVA - Entering an IVA is a substantial commitment and are only suitable for people who can make every monthly payment throughout the duration of the arrangement - There is a high cost involved with setting up an IVA and you may have to pay an upfront fee - An IVA is only available to people who do not have enough equity in their home to cover all their debts - An IVA must be agreed by 75% of your creditors in terms of value you owe not number of creditors, so if the company you owe the most money votes against it, the IVA will most likely fail - Not all debts can be brought into an IVA, debts that can are overdrafts, personal loans, credit and store cards, student loans and catalogue debts - An IVA will affect your credit rating and will appear on your credit file for 6 years - If the IVA fails, you may still end up being made bankrupt - Banks and credit card companies are very strict with what counts as essential, holidays, gifts and gym memberships will be regarded as luxuries and won't be able to be included in your budget - Minimum debt is £25k single/£40k joint
