Individual Voluntary Arrangement (IVA)

An IVA is one of the more extreme forms of Debt Management. It is only something worth considering if you are heavily in debt (over £15,000) and you expect your income (and health) to be in good order for the next five to six years. As you will read (below), if you can't maintain the originally agreed IVA payments, in full, you are only one step from Bankruptcy. If you feel flexibility is important to you Debt Management may be the better option.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your (lenders) creditors to pay a reduced payment each month. The payments must be paid - without fail - for a period of five to six years. After this time, the debt is considered to be settled.

How is an IVA arranged?

An IVA is arranged with the help of an Insolvency Practitioner and the law courts. Your Insolvency Practitioner will work out how much you can afford to pay each month out of your surplus income. Your Practitioner will draw up an an IVA proposal which sets out how you are going to repay your creditors.

A meeting is convened and your creditors get a chance to vote on the IVA Proposal. You must obtain a vote in favour from creditors representing at least 75% of your debt. If not, the IVA will be rejected by the Courts.

What happens if my income is reduced and I can't afford my IVA payments?

This is potentially a very serious situation and a key weakness of IVAs when compared to the flexibility of Debt Management.

If you are made redundant or have to accept a lower wage, then you will effectively have to rely on the charity of your creditors to accept a lower payment each month. Again, creditors representing 75% of your debts have the option to vote in favour or reject the offer.

If your creditors reject your offer or you are unable to make any payments, then the Supervisor (Your Insolvency Practitioner) will be forced to petition for your bankruptcy. It would be a disaster if, after 4 years of paying your IVA off, you were made bankrupt! A lot of time and money would have been wasted. You would be in a better situation if you had gone bankrupt at the start.

Can you insure against being unable to pay your IVA?

It is possible to buy insurance, but only for 24 months (two years) of the five or six year period. This leaves a considerable risk. The insurance will cover sickness, unemployment or terminal illness.

If your income or health could be unreliable, an IVA is unlikely to be the solution. Call MRA on 0800 612 92 23 for advice on which debt solution may be best suited for your situation or use our contact form.

IVA Advantages

  • An IVA does not have the same stigma or publicity that accompanies bankruptcy.
  • A business can continue to operate and generate income.
  • The person in debt is able to operate a normal bank current account, providing they do not have an overdraft facility.

IVA Disadvantages

  • If you are unable to make the repayments in full for any period during the five to six years of an IVA, you can be forced into Bankruptcy by your creditors. This will waste years of your time and money.
  • Assets such as your home, any savings and investments are less at risk than with declaring bankruptcy – however they are still at risk.
  • IVAs do affect your credit worthiness. You will have to manage without credit for a while.
  • IVAs will be kept on record for up to at least 6 years.
  • The cost of obtaining an IVA can be upwards of £2,500 plus VAT and expenses.
  • IVAs are generally only suitable if the debtor has unsecured debts of at least £15,000.
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0800 612 92 23

Mike Robertson Associates Business Solutions Ltd, 3 Old Ladies Court, High Street, Battle, East Sussex. TN33 0AH

Our offices are located near Hastings, Eastbourne, Lewes, Brighton and Tunbridge Wells