what is an IVA
An IVA – or Individual Voluntary Arrangement – can prove to be an extremely useful way of bringing debt problems under control and heading off what would otherwise seem to be the only other alternative, namely bankruptcy. Despite the growing numbers of people forced down such a route, bankruptcy retains not only a painful stigma but several severe penalties, many of which can affect the bankrupt’s present and future employment prospects. An IVA, therefore, can be a very powerful device for avoiding such a fate.
In simple terms, the IVA is based on a recognition by both the debtor and his or her creditors that the repayment of a significant total of debt has become practicably unfeasible. Instead, the IVA represents the debtor’s commitment to making the best possible settlement of those debts, whilst acknowledging that the entire obligation to repay cannot be met. Through a comprehensive and honest declaration of his or her current and foreseeable circumstances, the debtor aims to convince the creditors that the proposed IVA represents the fullest repayment likely to be achievable. In return, the creditors agree to the repayment terms set out in the IVA and after an agreed period (typically five years) any remaining debt is written off.
In a nutshell, therefore, an IVA can be seen as a bargaining process in which the debtor commits to repaying a proportion of his or her debts, shown to be the most that can realistically be expected, and the creditors for their part agree to this amount being the most they are likely to recover.
If the creditors agree to such an arrangement, it becomes a legally binding contract. Once it has been drawn up, the proposed IVA becomes the basis on which the debtor can apply to the courts for an Interim Order which restrains the creditors from taking any further legal action to recover their debts. Instead, a meeting of all of the creditors is called in order for them formally to accept or reject the terms of the IVA. This requires three-quarters of the creditors, in terms of the value of the total debts owed, to approve the arrangement.
If the IVA is approved, it is the debtor’s responsibility to ensure that the agreed repayment terms are kept. Provided the debtor does so, at the end of the IVA’s term, the debtor is free from all of the debts, whatever amount has actually been repaid.
Given the formal and legally binding nature of an IVA, it must be drawn up and supervised by a recognised and qualified professional. This might be a solicitor, an account or an insolvency practitioner. The appropriate professional fees will be charged for this service and these fees are typically incorporated into the total of the debts to be recovered under the terms of the IVA. Whilst this adds to the cost of an IVA, the financial penalty in the longer term is still likely to be less than that associated with bankruptcy.
Given its formal nature and the costs associated with setting up and managing an IVA, it is likely to prove a solution to problems arising from more substantial or intractable debts amounting to around £12,000 or more.
