Individual Voluntary Arrangements
What Is An Individual Voluntary Arrangement ("IVA")?
An IVA is in effect a deal between you and your creditors in full satisfaction of their debts and is an alternative to you being declared Bankrupt. It enables you to retain control of your finances and avoid the consequences of Bankruptcy.
An IVA is prepared with the assistance of a Licensed Insolvency Practitioner and unlike Bankruptcy, where you will lose control of their affairs, with an IVA you propose what is to be paid based on your ability to pay. Creditors can then either accept or reject the proposal and if the required majority of creditors accept the proposal, the proposal is binding on all creditors even if they voted against.
Types Of IVA
Typically the proposal will be to make monthly voluntary contributions payments, a lump sum payment (such as the re-mortgage of a property) or a combination of the two.
Voluntary Contribution IVA
This is where you offer monthly voluntary contribution payments for a period of up to five years. The amount that is offered is whatever you can reasonably afford, can be as little as £250 per month and will usually be substantially less than the debt repayments that were previously being paid. At the end of the five year period the IVA is concluded and the remainder of the creditors debts are written off. Typically, creditors will receive approximately 25-50% of their debt. Each case is unique and is assessed on its merits and the amount that creditors will receive will depend upon what you can afford to pay.
Lump Sum IVA
An alternative to a voluntary contribution IVA, the lump sum IVA involves the payment of a one off lump sum in full settlement of the debts. Such a proposal may be suitable where a family member is prepared to make a one off payment that generates a higher dividend than if monthly payments were made or where there is equity in a property that can be re-mortgaged. A lump sum IVA may be attractive to creditors as it will enable them to be paid in a matter of months rather than waiting for up to five years.
How the Process Works
The setting up of an IVA will take approximately four to six weeks from initial instructions to the meeting of creditors. The start of the process is fact finding and evidence gathering where full details of your affairs, creditors details, assets and income and expenditure are obtained. The IVA proposal is then drafted and once agreed by you is signed, lodged in Court and then sent to all creditors. The actual drafting of the proposal, lodging in Court and sending to Creditors is done by us and all you have to do is to provide the information and ensure that the proposal is accurate and correct.
A meeting of creditors is then held at which creditors can either vote in favour of the proposals, vote against the proposals or vote in favour of the proposals subject to modifications. You must agree to any modifications that are proposed for them to be binding on the proposal. The meeting of creditors is usually just a paper meeting as it is rare for anyone to attend in person as creditors will usually have submitted their votes by post prior to the meeting. You are not required to attend the meeting but should be available by telephone should any matters arise.
For an IVA proposal to be approved creditors must vote in favour and a majority of 75% by value of creditors who actually vote is required. Once the IVA proposal is approved it is binding on all creditors, even if they did not vote or voted against.
Once an IVA proposal has been approved creditors can no longer take any action against you. They can only claim their share of the dividend due to creditors from the IVA. You are of course also bound by the terms of the IVA and must do what you promised to do in the IVA proposal.
As was detailed above the IVA will be based on either monthly voluntary contributions, a lump sum or a combination of the two. Whichever type of IVA it is, money will be paid by you into the IVA fund which is managed by us as the Supervisor of your Voluntary Arrangement. It is the money in this fund that is used to pay the creditors. We will agree creditors claims, ensure that you are paying the correct amount and when sufficient funds have accrued will pay a dividend to creditors.
At the end of the IVA period, which will usually be five years for a Voluntary Contribution IVA but could be a matter of weeks for a Lump Sum IVA, you are released from your outstanding debts which are written off and you are then debt free.