Individual Voluntary Arrangements
Many people think that bankruptcy is the only option if they have debts that they simply cannot afford to pay. Happily, that is not the case, as there are a range of alternatives that can be used to deal with personal debt problems. An Individual Voluntary Arrangement (also known as an ‘IVA’) is one of those alternatives, for people who live in England and Wales.
An IVA is a legally-binding arrangement that enables an individual to put a proposal to their creditors to settle unaffordable debts, avoiding bankruptcy and safeguarding major assets like the family home or a business.
Typically an IVA debt solution lasts for between one to five years during which time interest and charges are frozen and repayments are made to creditors from contributions made out of earnings or from the sale of assets – the IVA is inherently flexible, to take into account the particular circumstances of each situation. At the end of the IVA, any debts that have not been repaid, are written off. The agreement requires the approval of at least 75% in value of voting creditors and, once approved, is legally binding on the individual and his or her creditors, whether or not they voted in favour of it. And an IVA can be put forward even if someone is already subject to bankruptcy proceedings or has recently been declared bankrupt.
IVAs are complicated and it is important to remember that there are advantages and disadvantages, as with all insolvency procedures. The Insolvency Practitioner who deals with your IVA as the ‘nominee’ and ‘supervisor’ will usually charge fees which will reduce the amount which is available to be paid to your creditors. Your credit history will be affected and the IVA will show up on your credit score whilst you are in the IVA and for six years after it is completed. The payments into your IVA may increase if your income increases during the term of the IVA and, if you are a homeowner, you may have to release some of the equity in your home or make additional payments into the IVA if you are unable to remortgage or obtain a secured loan. If you are unable to keep up with the payments into the IVA or if you breach other terms of the arrangement, the IVA may terminate and you may be made bankrupt.
Make sure you fully understand the terms of the IVA before you agree to enter into it.