In this video, Michael Chamberlain takes us through the main points of an Individual Voluntary Arrangement.
What is an Individual Voluntary Arrangement?
Widely used by individuals seeking help to avoid the stigma of bankruptcy, an Individual Voluntary Arrangement (“IVA”) is a formal agreement between a person owing money (“debtor”) and his or her creditors. The debtor undertakes to makes certain payments or realise certain assets, or both, in full and final settlement of their debts via an IVA.
Who is an IVA for?
How can Chamberlain & Co help?
The individual will need to instruct an insolvency practitioner such as Chamberlain & Co to advise on the most appropriate course of action. If an IVA is the chosen option a licensed insolvency practitioner from Chamberlain & Co can be appointed as Nominee to assist the individual to draft the proposal, seek a decision of creditors and subsequently be appointed the Supervisor, if approved by the creditors.
The IVA Process
Whilst there is no requirement to repay creditors in full over the period of the Arrangement, creditors will expect to receive at least as much as they would have, had the debtor been made bankrupt.
In addition, because the contract (“the proposal”) setting out what the debtor intends to do during the IVA requires the approval of more than 75% by value of their creditors, the greater the return to creditors the greater the likelihood of them accepting the proposal.
In considering an IVA it should be noted that the amount of the individual’s debts will be frozen at the date the proposal is agreed and interest will, generally, not continue to accrue, the IVA helps the debt stop getting out of control.
An IVA requires the involvement of a licensed insolvency practitioner (“IP”), who will help the individual put together their proposal and seek a decision of creditors to consider it.
In a typical IVA you will be required to make an affordable monthly payment to the IP out of any surplus income, after living expenses, ordinarily over a period of up to five years. In addition, if you own a property with equity in it, you may be required to make a lump sum payment(s) at the end of the IVA.
Provided you carry out what you promised to do in the proposal you will, in a typical IVA, be free of your debts in just over five years.
Advantages of an Individual Voluntary Arrangement
- You will retain control of your assets.
- An IVA may give you greater control over postponing, avoiding or crystallising the realisation of any equity in the family home.
- It is easier for you to remain in business as you will not be automatically disqualified from acting as a director of a limited company; partnerships will not automatically be dissolved and statutory restrictions on obtaining credit do not apply.
- Less stigma than bankruptcy.
- An IVA can allow you to help organise your tax affairs, i.e. plan disposals to maximum advantage of tax allowances.
- An approved IVA binds every person entitled to participate in the decision process.
- If you subsequently find yourself unable to comply with the terms of your IVA, perhaps due to a change in financial circumstances, it may be possible to amend the arrangement terms, provided the agreement of the appropriate majority of your creditors can be obtained.
- IVA fees are paid out of the available funds within the IVA and are controlled directly by the creditors.
- An IVA usually lasts longer than bankruptcy.
- Creditors may suggest modifications to the proposal.
- If you fail to comply with your obligations under the terms of the proposal it will fail, and you will then be at risk of legal action from your creditors.
- You may encounter difficulties in obtaining credit, as a note of the IVA will remain on your credit file for six years from the date of the approval of the arrangement. However, once it has been successfully completed this should also be noted on your credit file.
- You are released from an IVA once all the conditions of the arrangement have been complied with.