IVA Questions

Individual Voluntary Arrangement (IVA)

What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a legally binding contract made between you and your creditors. Generally you will agree to make a set monthly payment to the supervisor of the arrangement for up to 5 years. If you own a house you may also be asked to re-mortgage your house in order to release funds which take your mortgage up to 75% of the house value, usually within the 4th year of the arrangement. The funds raised by this have to be introduced into the IVA as part of the Arrangement.

The payments you make will be distributed on a regular basis to your creditors. In return for you making a commitment to pay what you can reasonably afford your creditors will agree to be bound by the arrangement. The IVA has added powers to a simple contract. Even creditors who have not agreed or bothered to vote for the arrangement will be bound by its terms.

If you find you are having difficulties in maintaining the payments you promised to make because of unforeseen problems the arrangement can be varied provided creditors agree.

Will I have to pay for the service?

Unlike many other companies offering debt management services you will not have to pay anything up front to us. When you are satisfied that you wish to propose an IVA and we have agreed we will do this for you we will recommend that you start making payments at the agreed rate. Our fees will be taken from your monthly payments. Because of our years of experience in this field it is very rare that arrangements we recommend are not accepted by creditors. If your arrangement is not accepted for any reason we will refund any money you have paid to us. If the arrangement is accepted any payments you have made to us will count towards the 60 payments due under the IVA.

Will I have to pay any costs or fees as well as making payments for the IVA?

No – All fees and costs of the arrangement will be met from the single monthly payments you pay for the IVA. This means that for example if you owe £30,000 and the IVA is set up on the basis that you pay £300 per month for 60 months this is all that you will repay. The costs of the arrangement will be paid from your monthly payments of £300 and the balance will be paid to your creditors.

What is bankruptcy?

If you are made bankrupt anything you own with the exceptions of household furniture and personal possessions and if applicable tools of your trade is transferred to the Official Receiver.

The main disadvantages of bankruptcy are:

• Your home will have to be sold to realise any equity belonging to you unless someone is able to come to your assistance and provide money equal to the value of your share of the home. Where the home is jointly owned with your husband or wife and he or she is not also made bankrupt it is possible to stay in the home for up to 12 months before it has to be sold.
• You may be ordered to pay contributions from your income for up to 3 years at a rate determined by the Court or the Official Receiver.
• You are obliged to disclose your bankruptcy status for certain transactions e.g. opening a bank account, obtaining credit, applying for certain jobs and often this disclosure causes difficulties.
• The bankruptcy is public and is publicised by advert in a newspaper local to you.
• The costs of bankruptcy are normally higher than the costs of an IVA and this means that generally there is less money repaid to your creditors.
• In a number of circumstances bankruptcy is nevertheless a positive way to resolve debt problems as all debts other than debts such as mortgages are wiped out on the making of the bankruptcy order.

How will I know an IVA is right for me?

If you can’t pay your debts an IVA may be right for you but IVAs are not right for everyone who has debt problems. All sorts of people enter into IVAs. Generally IVAs are not suitable for people who owe less than £15,000 or who owe money only to one or two creditors and people who cannot afford to pay more than £225 per month after allowing for living expenses.

When we have obtained all the information we need to be able to advise you we will be able to help you to decide which option is best for you. In some circumstances bankruptcy may be the best commercial option for you but an IVA may be preferred because it gives you the opportunity to pay something back to your creditors which you could not pay if you were made bankrupt.

Will my home be safe?

When you enter an IVA your home will be protected from being sold. Creditors will no longer be able to take any court action against you. Before the end of the IVA it may be necessary to realise up to 75% of your share of the home by arranging a remortgage or further advance. If you have difficulties doing this the IVA can be varied with the agreement of creditors. This may mean that creditors will accept a reduced amount if that is all you can afford or creditors may agree that the arrangement shall be extended for up to 12 months and income contributions be paid in place of obtaining the remortgage.

What happens if only some of my creditors agree?

Because the IVA is a ‘statutory’ contract it does not matter that some of your creditors do not agree to the IVA or that some of your creditors simply ignore it. As long as 75% in value of creditors who vote are in favour of the IVA then all your creditors will be bound by the IVA.

Who finds out about an IVA?

The only people who find out about the IVA are the creditors and the Court with which the IVA documents are filed. When the IVA is approved it is registered with the Department of Business, Innovation & Skills (BIS), which means that if anyone does a credit search against your name the search will disclose you have entered into an IVA.

Are there any disadvantages to an IVA?

In order for creditors to agree to an IVA you may have to propose to pay more than you would have done if you were made bankrupt.

You need to be confident you will be able to manage the payments you agree to make to the IVA because if the arrangement fails your creditors will be able to reclaim the whole of their outstanding debts and interest and costs as they will no longer be bound by the arrangement.

Will I be able to get credit again?

The IVA will normally provide that you will not obtain credit without the agreement of the Supervisor of the IVA. Your credit rating will be affected by the IVA for up to 6 years but for example if you wish to remortgage your house in order to obtain a better rate of interest this could easily be done at any time after 12 months from the IVA being put in place as long as you had maintained the payments due under the IVA.