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What Is An IVA?

Jun 20, 2008
An IVA is a formal and legally binding arrangement between you and the people you owe money (your creditors) to pay them back a percentage (often as little as 30%) of what you owe them over a 5 year term. An IVA is a legally binding agreement that protects you against any further action from people you owe money to.

An IVA is a debt solution that is recommended only when you have been through a best advice model and it is believe that it is the best possible option available.

An IVA is a contractual arrangement with creditors and can be as flexible as an individual's own circumstances; they can therefore be based on capital, income, third party payments or a combination of these.

An IVA is an alternative to bankruptcy; however they are not mutually exclusive. An IVA is available to all Individuals, Sole Traders and Partners ("the Debtor") who are experiencing difficulty in meeting contractual payments to their unsecured creditors.

Creditors will be bound by the arrangement even if they did not vote in favour (75% by value of creditors who do vote have to vote to accept for the proposal to succeed). Creditors take a decision at a creditors' meeting called to consider the IVA proposal.

Creditors bound by the IVA cannot take enforcement action to recover the debt, but instead submit a claim in the IVA and are paid by the Supervisor.

Creditors will expect a high level of commitment from the debtor during the term of an IVA. Creditors also have their own criteria, which they expect an IVA proposal to meet if they are to vote in favour. Creditors may vote with a modification asking you to suspend payments to a personal pension for the duration of the IVA.

Creditors cannot contact you and try and get money off you once this arrangement has gone ahead (an interim order is normally put in place whilst the IVA is being set up to stop them from doing this in the early stages as well). Creditors allow for this when considering IVA proposals. Creditors by law have to freeze all further interest and charges once the order is in place.

It is worth noting that if you do enter into an Individual Voluntary Arrangement (IVA) with your creditors and you have an endowment policy linked to your mortgage then you may be expected to cash it in and pay the proceeds into the arrangement.

Proposals can take account of erratic income such as overtime or bonuses. To get an agreement to your proposal, creditors that hold 75% or more of your debt must agree.

People you owe money to can suggest modifications to your proposal and you can choose whether to accept them or not. Once proposals have been drawn up you will need to check and sign these and return them to your IP who will then use this as the basis for his submission to the courts.

The IVA was established by the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor's creditors via an Insolvency Practitioner.

When is an IVA Suitable?

An IVA is suitable when someone is unable to pay off their debts but does not want to file for bankruptcy. Please be aware that an IVA is intended to be an alternative to those threatened by bankruptcy not a vehicle to dump unwanted debts.

Before entering into an arrangement as formal as an IVA it is useful to get independent advice and consider all the alternatives.
About the Author
Geoff Hibbert has over 30 years experience at the forefront of the uk finance markets
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