An Individual Voluntary Arrangement (IVA) allows you to pay off your creditors through monthly payments facilitated by an Insolvency Practitioner. In Scotland, it is known as a Deed of Trust. Unlike declaring bankruptcy, an IVA lets you keep more control of your money and continue to operate a business, a huge plus if you’re self-employed.
What Is Covered In An IVA?
You can include the majority of debts in an IVA including personal loans, credit cards, overdrafts, store cards, arrears (council tax, mortgages and utilities), and taxes. You can ask for secured loans to be included, but many creditors won’t give permission for this. You can’t include maintenance or child support arrears, student loans or court fines or joint debts unless the person you share that debt with agrees to an IVA.
There are no lower or upper limits to how much debt can be included in an IVA but, in general, creditors won’t agree to an IVA for less than £10,000. There are also no limits as to how many debts you include in your IVA.
If you can’t include a debt in an IVA, make sure you have enough money to make these payments or look for solutions that will cover all of your debts.
How To Set Up An IVA
To set up an IVA, you need an Insolvency Practitioner, who works with your creditors to reach agreements on payments. Setting up an IVA is a negotiated process. Your Insolvency Practitioner will generally meet with all your creditors and make a proposal for repayment of any debt. Creditors then have the option to request changes to the proposal until everyone is in agreement.
You can only set up an IVA if creditors for 75% of your debts agree, though it then applies to all creditors, stopping them taking action to recover money owed. As part of an IVA, your creditors will generally freeze interest on any debt.
IVAs are legally binding agreements and need court approval to be taken forward. Once your IVA is approved, your name will be entered on the Individual Insolvency Register. It will remain on the register until three months after the IVA has been discharged.
IVAs cost an average of £5,000 to set up. There is a set-up fee and a handling fee for each payment. Make sure you understand what these are before retaining an Insolvency Practitioner and that you can cover any additional costs.
Will An IVA Be Approved?
If creditors believe they are getting the best deal and will receive some, if not all, of what they are owed back, they are likely to agree to the IVA. Their decision will take into account how much money you can pay back each month.
Creditors will also want to see a consistent monthly income, giving them more confidence you can make payments, which might be harder to prove if you’re self-employed.
They’re unlikely to sign-off on an IVA unless you can make regular monthly payments, though some might accept a lump sum if you have something you can sell, property for example. Before you sell any property, discuss your options with your Insolvency Practitioner and whether it should be included in an IVA.
You must tell your Insolvency Practitioner of all your assets. Not doing so is a criminal offence and may result in penalties, prison terms or your IVA being cancelled.
Things To Consider When Setting Up An IVA
An IVA can have significant implications on your personal circumstances. You may need to use your savings, including pension payments, for example, to pay off your creditors, meaning you have no money for retirement. You may also be required to re-mortgage your house to release equity to help pay off your debts. Moreover, if you’re a solicitor or accountant, an IVA could impact your career and your ability to do your job.
If your personal circumstances change and you can’t make your payments, your creditors don’t have to accept less money, and you could be declared bankrupt. v
How Long Does An IVA Last?
In general, IVAs last five years and you’re required to make repayments every month. Payments include a fee to your Insolvency Practitioner. Once your IVA ends, you’ll receive a completion certificate. If you haven’t paid off all your debts at the end of your IVA, the remainder will be written off.
If you find out you’re due money, e.g. an inheritance before your IVA ends but don’t receive the money until after your IVA finishes, your creditors can make a claim on this money.