What is an individual voluntary arrangement?
For someone struggling with overwhelming debt, a potential option to explore would be an Individual Voluntary Arrangement (IVA).
An IVA is a formal agreement between an individual and their creditors to repay their debts over a fixed period of time, usually up to five or six years. It is a legally binding agreement supervised by a licensed Insolvency Practitioner, and once approved, it provides a way for individuals to manage their debts and avoid bankruptcy.
In the following article, we discuss what Individual Voluntary Arrangement rules look like, why they can be a suitable method for dealing with debt, how to apply for an IVA, and how our specialist solicitors can help.
If you’re debating an Individual Voluntary Arrangement, or simply need Individual Voluntary Arrangement advice, we recommend getting in touch with one of our expert IVA Solicitors by filling in the enquiry form on the right of this page. Alternatively, you can call any of our offices in London, Portsmouth and Norwich.
How does an IVA work?
Under an IVA, the individual agrees to make a single affordable monthly payment to their Insolvency Practitioner, who will then distribute the payments to their creditors. This payment is based on the individual's income and expenses and is designed to be affordable while still ensuring that the individual can pay their debts within the agreed timeframe. Alternatively, an IVA can include asset sales or lump sum contributions, or a combination of all of these. Any remaining debts are usually written off at the end of the IVA period. It is crucial to note that not all debts can be included in an IVA, such as secured debts like mortgages and car loans.
Our Insolvency Solicitors are all well-versed in this area and will be able to provide you with the Individual Voluntary Arrangement advice you need to make an informed decision before you sign up to an agreement.
What are the advantages of an IVA?
An IVA can be an effective method to help pay off debt. One of the biggest advantages of an IVA is that it allows people to avoid bankruptcy, which normally comes with long-term consequences affecting everything from their credit rating to any future loans they may wish to take out. Unlike bankruptcy, an IVA allows individuals to retain their assets (such as their home and car) as long as they can continue to pay off debts they owe.
An IVA puts a single monthly payment towards an Insolvency Practitioner in place, which helps to simplify the individual’s finances and reduce the anxiety around multiple debts. Additionally, interest and fees on all debts are frozen, which works towards reducing the overall amount owed and makes it easier to pay the debts back over a period of time.
Another advantage is that, when dealing with debt, an IVA acts as a formal agreement, meaning that once it has been approved, creditors are legally bound to its terms, so they cannot take any legal action against the individual – for example issuing County Court proceedings.
What are the disadvantages of an IVA?
While an IVA can be a method of managing debt, it is important to consider the potential disadvantages before entering into an agreement.
One of the main disadvantages is that an IVA will have a negative impact on someone’s credit rating, which can make it more difficult for them to obtain credit in the future. The impact is usually less severe than bankruptcy. This can affect an individual’s ability to obtain a mortgage, credit card, or loan for several years after the IVA has ended.
Another disadvantage of an IVA is that it is a formal agreement, which means that if an individual fails to make their agreed payments, their Insolvency Practitioner may terminate the agreement or petition for bankruptcy, or creditors may take legal action to recover the debt.
Additionally, an IVA remains on the public record, which means that it may affect an individual's employment prospects in the future. It is also essential to note that an IVA can be a lengthy process, lasting up to five or six years. This means that individuals will need to commit to making affordable payments towards their debts for a significant period of time.
How do I enter into an Individual Voluntary Agreement?
If you are considering applying for an IVA, the first step would be to have a discussion with our specialist insolvency solicitors. We will be able to help you decide whether an IVA is right for you and make sure you are aware of all your options.
We can then guide you through the entire process, including liaising with the Insolvency Practitioner who has been assigned to draft your IVA proposal, who is known as a Nominee.
The Insolvency Practitioner will work with you to devise a proposal for your creditors. This proposal will incorporate specifics of your income, expenses, the sum you can afford to pay per month, and the duration of the IVA.
Once you have engaged an Insolvency Practitioner, they will work with you to create a proposal for your creditors. This proposal will outline your income and expenses, the amount you can afford to pay each month, and how long the IVA will last. It will also include details of the debts you owe, the interest rates and any charges associated with those debts.
The Insolvency Practitioner will then present this proposal to your creditors on your behalf, and they will have the opportunity to vote on whether to accept it. To be approved, the proposal must receive the support of at least 75% of your creditors by the value of the debt. If your creditors accept the proposal, the IVA will come into effect, and you will begin making regular payments to your Insolvency Practitioner, who will distribute them to your creditors.
Speak to our Individual Voluntary Arrangement Solicitors
If you’re debating an Individual Voluntary Arrangement, or simply need Individual Voluntary Arrangement advice, we recommend getting in touch with one of our expert IVA Solicitors by filling in the enquiry form on the right of this page. Alternatively, you can call any of our offices in London, Portsmouth and Norwich.