Do I have to put all my debts into the IVA?

Yes, you need to ensure that all of your unsecured debts are included in the IVA. One of the principles of an IVA is that all creditors are treated equally and fairly with no preference given to any at the expense of others.

To prefer one creditor against others, that is to say to maintain a level of repayment to one debt which is at a better rate than the others, is not only unfair to the other creditors but, in the case of an IVA, could be considered illegal.

It is also important to bear in mind that one of the real benefits of an IVA for a debtor is that the IVA prevents the creditors from taking further recovery action against you, and enforces a freezing of interest and charges. This is though only applicable to those creditors you declare and thus include in the IVA. Where you have neglected to include debts, these creditors are not bound by the terms of the IVA and you lay yourself open to any action they subsequently take, particularly once they find you are in an IVA!

Can I leave out of my IVA a debt to my family?
Will I have to cash in my endowment policy when I’m in an IVA?
A Creditors’ Meeting for my IVA sounds a bit daunting! What happens?
Do creditors have to accept my IVA Proposal?
Is the decision of my IVA Proposal affected by who I use as an Insolvency Practitioner?
Can an IVA fail?

Can I leave out of my IVA a debt to my family?

That depends upon whether your family continues to want repayment of the debt, and often when made aware of your money problems, families write off the debt as a way of supporting a family member through their predicament.

Where this is not the case, they need to be treated like any other unsecured creditor and be included in the IVA with the rights of any other creditor.

Will I have to cash in my endowment policy when I’m in an IVA?

An IVA takes into consideration any assets of the debtor, as well as any ability to make monthly or regular contributions from income after covering essential living costs and priority debts.

As part of your commitment to clear as much of your outstanding unsecured debts through an IVA as you are able, you may well be asked to cash in assets of value, such as endowment policies, a proportion of equity in your house, savings and investments.

With regard to endowment policies, even if linked to your mortgage, you may well be asked to cash it in as part of the IVA proposals, with the proceeds paid into the IVA. You should take independent advice from your financial advisor about doing this; you may be aware that there has been a great deal of publicity about the misselling of such policies in the past and many have not performed as originally expected.

Encashment of the endowment policy linked to the mortgage may require a revision of the mortgage payment arrangements which need to be discussed with the mortgage lender and any revised repayments then factored into the review of Income and Expenditure.

Similarly, where there is evidence of equity in your home, it is very likely that you will be required to release some of that equity by way of a re mortgage which takes the borrowing against the house to no more than 85% of the property’s value, to be injected into the IVA usually towards the end of the IVA term, for payment to the creditors.

You may feel that this is a somewhat drastic move, but it may be the factor that swings an IVA in your favour, and helps you to ensure you keep your property.

A Creditors’ Meeting for my IVA sounds a bit daunting! What happens?

The Meeting of Creditors is used to approve the IVA Proposal and must be held at a convenient venue, usually some time between 10am and 4pm on a business day, and usually will be chaired by the Insolvency Practitioner acting as the Nominee of the debtor. The Nominee has to give the creditors reasonable notice of the meeting so that the creditors can consider the proposal and if felt necessary, attend the meeting.

The concept of a Creditors’ Meeting, particularly in respect of IVAs for individuals, is a somewhat old fashioned process, and whilst such an occasion has been used for discussion and voting upon IVA Proposals in person in the past, nowadays these tend to ‘virtual’ meetings in that much is carried out on the telephone or fax, or by creditors authorising the Nominee to act on their behalf in the voting following submissions of proxy appointments in writing.

Creditors are entitled, and indeed requested, to vote in respect of the IVA Proposal so that there is clarity about the viability of the Proposal. Votes are calculated according to the amount of outstanding debt at the time (to be proven by the creditor), and will represent the unsecured debt of the debtor. However, secured creditors are also entitled to vote to the extent of the unsecured element of their debt.

At the Creditors’ Meeting, the meeting will pass a resolution to either approve the IVA or modify the Proposal where this is felt reasonable to gain agreement, and any such resolution will require a minimum of 75% (in value terms) of the debt represented by the voting creditors (whether in person or by proxy).

Once the creditors voting approve the IVA, every creditor included in the IVA, who had received notice of the meeting and was entitled to vote at it, whether choosing to do so or not, is bound by the IVA agreed.

Keep in mind that IVAs relate to unsecured debts and therefore an IVA will not affect the rights of secured or ‘preferential’ creditors without their agreement.

Following the meeting, the Chairman is required to prepare a report of the meeting, circulating a copy of the report to each of the creditors advised of the meeting, to advise the result of the voting process, whether the Proposal was approved, and if so, whether it was in any way modified at the meeting.

If the IVA is approved, the Chairman must file details of the arrangement with the Secretary of State for inclusion in the public register.

Do creditors have to accept my IVA Proposal?

The short answer to this is: NO!

However, thankfully it is not as straightforward as that, and that is why you need to ensure you speak to experts who properly understand how creditors view IVAs and what criteria each use when assessing their requirements from an IVA. National Money’s team of experts has considerable, up to date, knowledge of creditors’ needs and can advise accordingly on 08448 247 260.

For an IVA to be approved, a minimum of 75% (by value of debt) of the creditors who vote at the Meeting of Creditors (or by proxy votes) is required in order to tie in all of the creditors. On the basis that this number votes in favour, it does not matter if any of the other creditors are against the IVA Proposal; it will be binding on them also even if they did not want it.

So, whilst some creditors may vote against a Proposal, this does not automatically mean that the IVA will not be approved.

Is the decision of creditors about my IVA Proposal affected by who I use as an Insolvency Practitioner?

As all Insolvency Practitioners have to be licensed and member so a regulatory body which oversees their professional standards, they all should maintain the same level of standards and ethics, and therefore be perceived in the same light by creditors.

Like it or not, creditors will always have their own opinions of individual Insolvency Practitioners based upon their previous experiences, and they will have due regard for the professional standards of the IP who is the Nominee.

Can an IVA fail?

This description is used when the terms of the IVA are not fully carried out as set out within the original IVA Proposal.

It is absolutely critical that at the outset, the arrangements being proposed are realistic and can be afforded, not just today but for the extended period of the IVA. There have been many occasions in the past where, with the best of intentions, a debtor has signed up to a monthly payment which was always going to be tough and has in hindsight been too high to be fully afforded.

It is often very difficult to see how life will work out in the next 6 months, never mind 5 years, particularly in an environment where there are fears of redundancy etc, and even then with the best laid plans, circumstances can dictate that you can no longer afford the requirements of an IVA, which will result in it being classed as ‘failed’.

An IVA, whilst a legally binding contract, still requires the commitment of the debtor to ensure its success. However, 5 years can be a long time particularly when the terms of the IVA are tight, and some debtors will lose interest in seeing it through or indeed, for whatever reason, will refuse to co operate with the Supervisor of the IVA. This will result in the IVA being ‘failed’.