Individual Voluntary Arrangement: An Option For Dealing With Debt

by Tanya July 01, 2024

Individual Voluntary Arrangement (IVA) can help some people regain control of their finances and become debt-free.

What is an IVA?

An IVA is a legally binding agreement between you and your creditors. You’ll work with an insolvency practitioner to create a plan to repay a portion of your debts over a set period, typically five years. Your insolvency practitioner negotiates with your creditors to freeze interest and charges, making your repayments more manageable.

An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.

An IVA can give you more control of your assets than bankruptcy.

Choosing between an IVA and a Debt Management Plan (DMP)

While both IVAs and Debt Management Plans (DMPs) tackle unsecured debts, they differ significantly.

DMPs are informal agreements where you make monthly payments to a debt management company that distributes the funds to creditors. However, creditors aren’t obligated to participate or freeze interest.

On the other hand, IVAs are legally binding, offering protection from creditors and potentially written-off debt after a set period.

Advantages of IVA

The most common reason people choose an Individual Voluntary Arrangement (IVA) is to gain control over unmanageable debt while avoiding the severe consequences of bankruptcy.

An IVA allows individuals to retain their home and other significant assets, provided they keep up with the agreed payments. This is particularly appealing to homeowners who want to avoid the risk of losing their property.

An IVA offers greater flexibility compared to some other debt solutions. Your insolvency practitioner will work with you to create a personalised plan that fits your circumstances. This can include adjusting your monthly payments if your income fluctuates. Additionally, unlike Debt Relief Orders (DROs), which have a debt threshold, IVAs can accommodate a wider range of debt amounts.

An IVA typically includes the freezing of interest and additional charges on the debts included in the arrangement. This can significantly reduce the total amount to be repaid and make the debt more manageable.

Cost of IVA

There are usually 2 fees:

  • a set-up fee
  • a handling fee each time you make a payment

Ask these questions before hiring an insolvency practitioner

Your IVA can be cancelled by the insolvency practitioner if you do not keep up your repayments. The insolvency practitioner can make you bankrupt.

Before committing to hiring an insolvency practitioner, ask them these questions:

1. Ensure the IP is properly licensed and regulated by a recognized professional body.

2. A good IP should be able to clearly explain each step of the process.

3. They should evaluate your financial situation comprehensively before recommending an IVA.

4. Be clear about all costs involved, including setup and ongoing management fees.

5. Are there any hidden costs or additional charges I should be aware of?

6. Understand their approach and experience in dealing with creditors.

7. What percentage of creditor approval is typically required for an IVA to proceed? Usually, 75% by value of your creditors need to agree.

8. How will an IVA affect my credit rating and financial future? Understand the long-term implications of entering into an IVA.

9. Discuss the flexibility and options available if your circumstances change.

10. How are they going to ensure compliance with current insolvency laws and regulations? They should be up-to-date with all relevant legal requirements.

11. Understand the potential consequences and steps that would follow a failed IVA.

12. Can I exit the IVA early if my financial situation improves significantly? Discuss options for early completion if your finances improve.

When is Individual Voluntary Arrangements (IVA) a good option

Here are some scenarios when an IVA might be suitable:

Significant debt: If you have substantial unsecured debts (usually over £10,000) that you are unable to manage through regular payments.

Regular income: You have a regular and stable income, allowing you to make consistent monthly payments towards the IVA.

Creditors agreement: You need to secure agreement from creditors for a manageable repayment plan, typically requiring at least 75% (by value) of your creditors to agree to the terms of the IVA.

Protection from legal action: You need legal protection from your creditors. An IVA provides this as once it is agreed upon, creditors cannot take further legal action to recover their debts.

Professional help: You require professional assistance in negotiating and managing your debts. An Insolvency Practitioner (IP) will administer the IVA and deal with creditors on your behalf.

IVA may not be suitable if:

An Individual Voluntary Arrangement (IVA) may not be a good option under the following circumstances:

* Your income is irregular or insufficient to meet the monthly payments.

* Your debts are primarily secured (like mortgages) or are not substantial enough to warrant an IVA.

* You do not commit to adhere to a long-term repayment plan.

* If your financial difficulties are temporary and expected to improve soon, other short-term solutions may be better than committing to a long-term IVA.

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