IVA Explained

If you are an individual living in the United Kingdom and are experiencing serious financial difficulties, a legal alternative exists to declaring bankruptcy. The alternative is called an IVA, or Individual Voluntary Arrangement.

The IVA Option

You are a British subject residing in the United Kingdom with multiple debts and serious financial difficulties. Perhaps you can't make loan repayments, manage your credit payments or a mortgage, or you have other debts that are beyond your ability to pay.

You want to find a way to deal with your creditors, but you would prefer not to declare bankruptcy.

One option open to you is an IVA.

What is an IVA?

The IVA, otherwise known as an Individual Voluntary Arrangement is a legal contractual arrangement to pay off creditors by an individual, with oversight by an Insolvency Practitioner (court administrator).

Made law in 1986, the IVA was established by and is governed by Part VIII of the Insolvency Act. It is available in England, Wales and Northern Ireland--residents of Scotland use the Standard Trust Deed.

Any individual with a total debt of more than 15,000 and a steady source of income can benefit from an IVA.

Websites offering additional information include: the Insolvency Help Line, IVA Information, and IVA Debt Solutions.

How Does an IVA Work?

You offer to repay a percentage of debt to your creditors through monthly installments. The amount is based on what you can afford and figured with the assistance of an appointed Insolvency Practitioner.

While an IVA is acceptable to most creditors because the return they receive is likely to be higher than with a bankruptcy proceeding, 75 percent of your creditors must agree to it. Creditors may reject a proposal that pays less than 20 to 25 percent of the amount originally due them.

Once agreed on, installments must be made regularly, or the IVA will be considered in default. The average IVA agreement, usually lasting five years, can be paid off sooner.

Benefits of an IVA

The IVA can be more flexible with regard to your financial circumstances than bankruptcy.

If you own a business, you can continue to control and run it, as long as all payments are made.

Unlike bankruptcy, it does not require you to sell your home. Other assets are considered on a case-by-case basis. If you need your car to go to work, it will most likely be excluded.

You can propose an IVA even after an Order of Bankruptcy has been made up against you, although it then becomes a more difficult procedure.

Concerns

If you are on Income Support, you should consider bankruptcy or a repayment plan that is less formal.

If you lose your job or source of income, you must immediately contact your Insolvency Practitioner, as this may conflict with meeting the terms of your IVA.

If you are a member of a profession, check with any organization in which you hold membership to see if entering into an IVA agreement will affect your accreditation.

Further unsecured credit (credit cards, personal loans, etc.) will not be allowed for the duration of your IVA. A note is put on your credit file to alert lenders, and remains on your credit file until one year after the IVA is completed.

What Happens After the IVA is completed?

When the IVA is completed and you have made all stipulated payments to your creditors, you will receive a Statement of Completion from your Insolvency Practitioner.