What are the advantages and disadvantages of an Individual Voluntary Arrangement (IVA)?

Advantages

An Individual Voluntary Arrangement (IVA) allows an individual to make an offer to their creditors to utilise their assets and income to settle their debts in full. It is a flexible process and its possible for the individual to either include or exclude their assets and to determine the time period over which the process will run.

The individual will retain both legal ownership and physical control of their assets as opposed to in bankruptcy when legal ownership and physical control is passed to the trustee of the bankruptcy estate. Assets can be excluded from the procedure: However, this will require the agreement of a meeting of creditors. If an individual’s personal circumstances change during the course of the IVA, it is possible to reconvene a further meeting of the creditors in order for them to consider changes to the proposal which will allow the personal circumstances to be accommodated eg. temporary loss of income.

An IVA can be used to lift an individual out of an existing bankruptcy as long as creditors are willing to agree to use that process. The bankruptcy proceedings will be replaced and annulled meaning the bankruptcy will be wiped from the record as if it had never happened.

The costs and expenses of an IVA can be a good deal less than those in bankruptcy. If the Official Receiver or an alternative trustee in bankruptcy has to realise the assets, a scale rate fee normally at 15% of all realisations will be charged on all realisations in a bankruptcy. If by the individual working with the supervisor of the IVA this facilitates the easy realisation of the assets, this will minimise costs and make the procedure more attractive to creditors.

Disadvantages

The principle potential disadvantage is whether it ultimately proves possible for the individual to implement the terms of the arrangement that were originally agreed with your creditors. If due to changes in your personal circumstances or job etc you are unable to implement the terms of the scheme, you will be reliant upon the creditors agreeing at a new meeting that you can amend the terms of the IVA in order to remedy what would otherwise be deemed to be a breach of the arrangement.

If the breach cannot be remedied then, subject to views of creditors, the supervisor may be obliged to file a petition for a Bankruptcy order against you.

Please also be aware that an IVA is a formal insolvency process and hence will appear on your credit record and have an adverse effect on your credit rating whilst it is current and therefore will impact on your ability to obtain credit and bank accounts etc.