An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors. This is a viable alternative to bankruptcy if you still have a reasonable income with which to pay creditors each month or a lump sum or assets you can include. In particular, homeowners facing bankruptcy may find an IVA to be a preferable solution as you will not always be asked to sell your home.
If accepted by your creditors, an IVA will last for 5 years and any remaining debts are written off after this. Usually you will be required to pay back a minimum of 20p for each £1 that you owe. Once an IVA commences your creditors are no longer allowed to contact you or take any further action. Choosing an IVA is a serious commitment and your situation will be fully reviewed by an Insolvency Practitioner to ensure it is suitable. An IVA can be completed within 5 years if you are able to pay a lump sum and clear your debts.
What are the benefits of an IVA?
- The main advantage of an IVA is that it is a legally binding agreement on creditors once the IVA proposal has been accepted. A Debt Management Plan, being an informal agreement, does not offer this benefit.
- An IVA can include all unsecured debts. You will pay a fixed monthly amount that will be distributed to your creditors over the course of 5 years. When the 5 years have ended the remaining debt outstanding is written off.
- As an IVA is a legally binding agreement your creditors cannot contact you or take legal action and are bound to the arrangement. Under an IVA proposal, all creditor contact is made via the IVA insolvency practitioner.
- Unlike Bankruptcy you will not be forced to sell your assets; equally you do not have the same employment restrictions and can continue to trade if you own your own business.
Are there any disadvantages to an IVA?
- If you have paid an upfront fee for your IVA and for the services of an Insolvency Practitioner and the arrangement is not accepted by the creditors then you will have lost the fee and be in a worse position than when you started.
- If you own your own home, the Insolvency Practitioner and creditors may make you re-mortgage your home as part of the IVA. If you are unable to do this then the home may need to be sold.
- An Individual Voluntary Arrangement (IVA) is quite rigid in terms of repayments into the plan, and although there can be some flexibility in extreme circumstances, generally the payment terms will need to be adhered to over the 5 years. As an Individual Voluntary Arrangement (IVA) is a formal agreement, you will be bound by its terms and repayment. If for any reason you are unable to comply, the Individual Voluntary Arrangement (IVA) will have been breached. This could lead to bankruptcy.
- Your creditors will expect to benefit from any increase in income. For example, should you work overtime and earn extra income you may have to divide up the money 50:50 between you and your creditors.
- As the IVA is recorded in a public register, this will affect your credit rating and ease of borrowing money in the future. This record will remain in place until the IVA is completed. Only when the Individual Voluntary Arrangement (IVA) is completed will you be able to start to improve your credit score.
- It should be taken as read that once the Individual Voluntary Arrangement (IVA) commences, you are not permitted to take out any credit agreements.
