Individual Voluntary Arrangement (IVA)
- See also:
- How to Start an IVA
- IVA Advice
- IVA Costs
- IVA Approval Process
- IVA Criteria
- IVA FAQs
- Bankruptcy or IVA
- How an IVA works
- Scottish Trust Deeds
- authorised debt settlement
- comparison matrix
- apply online
An IVA is an alternative to bankruptcy introduced by the government as part of the Insolvency Act 1986. It enables an individual in debt (debtor) to make a proposal to the people they owe money to (creditors) to reach a settlement. Should the proposal be approved by a majority of the creditors, the IVA then stands as a contract that binds all parties and prevents any further action.
A standard IVA will offer to pay whatever is affordable monthly into a fund over a five year period, and after that the debt is cleared. This can be the case even if the creditors end up getting less than 30% of their debts repaid, and so monthly payments into an IVA can be as little as £250 per month. Payments are based on what an individual or household can actually afford and are normally over £300-400, but still tends to be significantly less than the existing minimum payments on credit cards and loans.
IVAs are becoming an increasingly popular choice for the over-indebted in the UK. Clear Start has a department that specialises in advising on, setting up and supervising IVAs and is one of the UK's leading insolvency organisations in this field.
How an IVA Works
The IVA was designed initially to be a more convenient means for processing individual insolvency cases without incurring the excessive costs and court time involved in bankruptcy. As such there are many elements that are similar to bankruptcy, but the process is simpler and the outcome less severe.
So for example under either bankruptcy or IVA they are the same assets and income that are up for distribution to the creditors; it is just that it is the individual who proposes what will be paid into an IVA, whereas under bankruptcy the magistrate at the hearing decides what the outcome will be.
The application and set up process takes around 4-6 weeks from the point of application, including activities such as fact finding, collection of evidence, drafting the IVA proposal, reviewing and signing, sending to creditors, and voting. The most professional organisations will do the majority of the work themselves and will only require the debtors for minor activities such as providing evidence and reviewing and signing the documentation.
The resulting proposed IVA will be based on what the debtor can realistically afford to pay over a five year period. Normally it will be made up of sixty monthly payments at an agreed level, however it can also include lump sum contributions from, for example, a release of equity from a property.
The approval of an IVA is dependent on receiving a 75% majority of approving votes from the creditors. Most lenders have standard terms for what they will accept, including normally a reduction in the overall level of debt by as much as 75%. Most good insolvency practices are quite familiar with these terms.
Once approved a standard IVA will run for a five year (60 month) period. During this period payments are made on a monthly basis into a fund that the Insolvency Practitioner governs. The funds that accumulate in this account are used to pay off the creditors. This fund is also used to pay the fees of the Insolvency Practitioner.
The payments into the fund are supervised by the Insolvency Practitioner. There are normally payslip reviews approximately every quarter, and a full review of the debtors situation every twelve months.
During the period of an approved IVA the creditors are required to freeze all interest on the debts, and they are prevented from pursuing the debts and prevented from progressing any legal action related to these debts.
At the end of the five year period, assuming that the IVA has been satisfactorily completed, all of the debts are cleared.
When is an IVA Suitable
An IVA is suitable when someone is unable to pay off their debts but does not want to file for bankruptcy. It can be an attractive option to all parties including the creditors as often it presents for them a better result than under bankruptcy.
There are certain criteria however that are required for an IVA to have a good chance of success. It is recommended that a debtor speaks to a Clear Start advisor to get a better understanding of what these are. The following are some simple guidelines for what can work:
- Minimum unsecured debt of around £15,000 -20,000. (no maximum)
- Minimum monthly payments of £250-300. (no maximum)
- Stable monthly income.
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What to Look Out for
- Companies who are trying to be pushy about selling IVAs. Watch out for advertisements that offer to reduce debts by 75-90% before knowing more about an individual's situation.
- Total contributions into an IVA tend to be more than under bankruptcy, because of the five year period. However there are other implications of bankruptcy. Make sure that the difference between bankruptcy is fully understood.
- Be careful not to continue to build up other types of debt such as credit cards and overdrafts. Some organisations suggest cutting up credit cards until the consolidation loan is paid off.
How to Apply for an IVA
- Clear Start has a high volume internal insolvency department that processes hundreds of IVA applications every month. There is also a selected panel of preferred partners who can handle IVAs for various specific circumstances.
- Also, if you are not satisfied with the progress of an existing IVA application with another organisation contact Clear Start to see if an alternative can be arranged.
To talk to an advisor about an Individual Voluntary Arrangement call 0800 138 5445, or complete the enquiry form.
To contact an advisor call 0800 138 5445. Alternatively complete an online enquiry form and an advisor will call you back at the time that you specify.