What is an Iva

Individual voluntary arrangement

What are Individual voluntary arrangements (IVAs)? In the UK they are a less restrictive alternative to bankruptcy, however they are only valid in England, Wales and Northern Ireland, the law in Scotland is different. An IVA is an arrangement between a debtor and his/her creditors to pay off the debt overt a period of time, usually five years. This has to be overseen by an insolvency practitioner, who has to be paid too (usually around 15% of the money paid off.). At the end of the period any debt left outstanding is usually written off. Any agreement reached with your creditors will be binding on them.

How does it work?

Firstly you must find an authorised insolvency practitioner prepared to act for you. Then you need to apply to the court for an “interim order”, which stops your creditors from taking action against you for a period without the permission of the court, for example making a bankruptcy petition.

The insolvency practitioner must inform the court about the details of your proposal and give his or her opinion if a meeting of creditors should be called to consider it.

When a meeting is arranged, the date of the meeting and details of the proposals are sent to your creditors. It is important that you have accurate records of all your creditors’ names and addresses as only those creditors who had notice of the meeting are bound by the arrangement and the arrangement might fail if the practitioner cannot contact all the creditors and bind them to the arrangement

During the meeting, the creditors vote on whether to accept your proposals. If over 75% in value of the creditors present who vote, in person or by proxy, vote in favour, the proposals are accepted. They are then binding on all creditors who had notice of, and were entitled to vote at, the meeting.

Like bankruptcy the IVA has some advantages and some disadvantages.

Advantages of an IVA over Bankruptcy

An IVA often lasts up to five years although not necessarily it depends on the agreement reached, whereas a bankrupt is normally discharged after a year and this amount can be reduced.

Payments made to creditors by the debtor are generally much lower than under an IVA so from this point of view an IVA is better for the creditor.

Whereas the full details of a bankruptcy have to be published in the local newspaper and the London Gazette an IVA is classed as a private arrangement between a debtor and his/her creditors so it does not have to be published so there is much less public stigma attached.

Someone who is subject to an IVA is not banned from obtaining credit as a bankrupt is however both IVA and bankruptcy have a very bad effect on a persons credit rating as it will stay on a debtor’s credit for six years from the date of the IVA or bankruptcy.

An IVA gives you more say in how your assets are dealt with and how payments are made to creditors. You may be able to keep your home under this type of arrangement. Costs are often lower as you will not have to pay some of the fees and expenses which are charged in a bankruptcy particularly those imposed by the government.

Failure of the IVA

If an IVA fails because the payments are not kept up or full details of your assets and debts are not disclosed then the insolvency practitioner, or any creditor bound by the agreement may still petition for your bankruptcy. It is vital to deal with a good and reliable Insolvency Practitioner as debtors are often surprised at how much of the money they pay into the agreement goes not to the creditors but to the Insolvency Practitioner.

If you are in serious difficulties over paying your debts you should take good legal advice. This does not have to be expensive as it can be obtained from the Citizens Advice Bureau in most major Towns.