All you need to know about an IVA
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This information has been written to help answer several commonly asked questions in relation to an Our Individual Voluntary Arrangement:
1.
What is an IVA?
2. How do I set up an IVA?
3. What is the effect of an IVA?
4. How much do I have to pay?
5. What happens at the end of an IVA?
6. Why would an IVA be good for me?
7. Why would my creditors accept an IVA?
8. What if I can’t carry out my proposals?
9. Are there any disadvantages?
10. How much does it cost?
11. Will I be able to get credit again?
1. What is an Individual Voluntary Arrangement (IVA)?
An IVA is a solution. Basically it is a contract between you and your creditors. You being the debtor and creditors the people to whom you owe money.
Under the rules and regulations laid down by the Insolvency Act 1986, the Arrangement binds all creditors. The terms of the proposal are tailored to your own personal circumstances, therefore you need to be completely open and honest ensuring all relevant information is disclosed.
If the creditors accept the proposal, the IVA will be implemented.
2. How do I set up an IVA?
An IVA can only be set up with the help of a Licensed Insolvency Practitioner (known as an “IP”). The IP has an important role to play in the proceedings. They are there to advice, at all times, to take your interests, and those of your creditors, into account.
When your proposal is submitted your IP has to file a report at the courts with supporting statements commenting on, among other things, the fairness of the proposals and recommending whether or not they should be put forward to the creditors.
Assuming that the proposals are reasonable, there are a number of steps in the whole process.
1. Once the nature of the proposal has been agreed the IP produces the appropriate paperwork.
2. Although not necessary in most cases, a court order can be obtained protecting you from any legal action by creditors. The effect of this order is that creditors are prevented from commencing or continuing with any legal action. This provides the necessary time for the proposals to be considered properly.
3. A meeting of creditors is then called to consider the proposal and the creditors vote on whether to accept them. If more than 75% of the creditors who vote approve the proposal then the Arrangement comes into immediate effect and all creditors are bound by its terms (creditor’s votes are counted in proportion to the amount that they are owed).
3. What is the effect of an IVA?
Once the Arrangement is in force all creditors are bound as long as they were properly notified.
This means that as long as you fulfil the proposal none of the creditors included in the Arrangement can commence or continue any legal proceeding. In fact, as long as you keep to the agreed terms, you will be protected against any further recovery action by those creditors.
4. How much do I have to pay?
Creditors will normally expect your IVA proposal
to provide for you today the full amount of your surplus monthly
income (what you have left after you have paid your essential
living expenses) and then a further 50% of any increase in net
income that you receive during the course of your Arrangement,
such as overtime or bonuses. They basically want to know that
you are paying as much as you can reasonably afford and that you
are able to maintain your day to day expenditure commitments.
Unlike most Debt Management Companies, Bespoke Debt Solutions
do not charge a single penny in the course of helping you prepare
for a IVA
5. What happens at the end of the Arrangement?
IVAs are usually set up so that the payments creditors receive under the Arrangement are accepted in the full and final settlement of everything you owe.
This means that at the end of the Arrangement, as long as the proposals have been successfully maintained, the creditors will have no further claim against you and, as far as you and the creditors are concerned, the balance of any unpaid debts is written off.
6. Why would an IVA be good for me?
An IVA is beneficial when creditors are applying
too much pressure or when it would take you an unacceptable time
to repay your debts.
People who have benefited often say that one of the best things
is that they know exactly when they will finish repaying their
debts and because the payment term is
fixed (usually 5 years). As with so many things, people can cope
better if they know they can see light at the end of the tunnel.
Other advantages include:
- Only one affordable monthly payment.
- All creditors are bound by the arrangement so they are prevented from taking legal action
- Contact from creditor via phone and correspondence will stop
- Fixed period of repayment
- No public notice
- No notification to your employer
7. Why would my creditors accept an IVA?
An IVA can produce a better return for your creditors than would be available to them with an alternative, such as bankruptcy and the proposal should demonstrate this.
Apart from demonstrating a better return than bankruptcy, creditors benefit from knowing that the IVA will be monitored and that your finances will be subject to a disciplined procedure.
8. What if I can’t carry out my proposals?
If you can’t carry out your proposal then the Arrangement will be breach.
The precise definition of “breach” will be made clear in the Arrangement proposal but, broadly speaking, if the breach arises because you fail to do something, e.g. to make certain payments, whether wilfully or because of circumstances beyond your control, then you will lose the protection that the Arrangement has provided you.
9. Are there any disadvantages?
To be successful an IVA need commitment and a desire to see it through.
- If you own your own home, you are likely to have to make available some of the equity in your property (although this won’t usually be until the monthly payments into the IVA have been completed).
- If you earn extra income, for example overtime or bonuses, you will have to contribute a part of this to the Arrangement.
If you are considering an IVA then you are obviously facing difficulties and are looking for a solution. Although IVAs have disadvantages, in many cases the benefits far outweigh other alternatives available to you.
10. How much does it cost?
Because different fees apply to different cases it is not possible to set them out here. You will, however, be made fully aware of the proposed fees in your case before you are committed to the process.
They will be agreed with your creditors at a fixed amount at the outset and will be deducted from the payments you make to the Arrangement over the lifetime of your case.
11. Will I be able to get credit again?
You probably
feel that you won’t ever want credit again but this is still
a very commonly asked question. The short answer is that it will
depend on your circumstances at the time you apply for credit.
It is important to note that during the term of the IVA you should
not attempt to obtain further credit. Experience shows that people
are often able to obtain credit once their debt problem has been
dealt with.
Having successfully completed an IVA will undoubtedly stand you
in a better position than you would be in if you went bankrupt
or not dealt with the debt problem at all.
If you want to take control of your finances in 2008, find out more, call us on 0800 0439 245 or Fill out our call back form for a Confidential Review