An Individual Voluntary Arrangement is an agreement made between yourself and your creditors to repay a portion of your debt typically over five years.
In order to qualify for an IVA you must have total unsecured debts of £15,000 or over and be a resident of England, Wales or Northern Ireland. In Scotland a different process known as “Trust Deeds” is used. If you owe less than £15,000 then a process of debt management is usually recommended.
In order for an IVA to be approved 75% of your creditors must agree to the process. An IVA is a binding agreement and has to be set up by an insolvency practicioner. There are no up front charges for arranging an IVA.
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How Does and IVA Work?
Typically you would first take advice on a range of debt solutions, and only choose and IVA where appropriate. Then you would need to appoint an Insolvency Practicioner to work with you. You would work out (with the help of the Insolvency Practicioner) what you could afford to pay back each month. The final figure of what you can afford will be based on disposable income and assests you may have.
The insolvency practicioner will then approach your creditors to try and negotiate a formal binding agreemen with them. This involves trying to get your creditors to write off a portion of your debt, bringing the total amount in line with what you can afford.
Why Would Creditors Write Off Debt?
An IVA would only be considered by creditors if you genuinely cannot afford to repay your total debt and are in danger of declaring yourself bankrupt.
Like bankcruptcy, and IVA is a form of insolvency.
If you were to declare yourself bankrupt then your creditors would potentialy lose even more money than they would under the terms of an IVA.
As well as creditors losing money through bankruptcy, there are serious consequences for the debtor too. Getting credit or loans in future will be extremely difficult (though it will also be difficult if you have been in an IVA). There are other restrictions too, for example you cannot be a director of a company within a given period of declaring bankruptcy. You could lose other assets as part of bankruptcy proceedings.
So, an IVA is in essense a form of damage limitation, protecting the creditors from even deeper losses, and protecting the debtor (individual) from the wider consequences of bankruptcy.
Benefits of an Individual Voluntary Arrangement (IVA)
The key benefits of an IVA are:
- Avoiding bankruptcy proceedings
- Reducing your monthly repayments by up to 70% **
- Clear all debt within an agreed time frame (typically five years)
- Protect your other assets
- Creditors are legally bound by the agreement and can no longer persue you for monies owed (no more letters etc.)
- Consolidate your debts into a single manageable payment
** Whilst it is possible to get up to 70% of debt written off it is not often the case. You need to bear in mind that this is a negotiation based on what you can afford to pay, and creditors naturally want as much of the debt repayed as possible. How much you are able to get written off depends entirely on individual circumstances and the ablility of the Insolvency practitioner to negotiate agreement with your creditors.
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