Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is an option for dept consolidation in some cases. This is the alternative to declaring bankruptcy, and must be set up by a licensed Insolvency Practitioner (IP). There are certain criteria that apply if you wish to take this route, and an IVA is not the solution for everyone.

In general an IVA is only available to you if your debts amount to more than £15,000 and you owe at least two creditors. If you qualify for this plan you may be able to reduce the amount of your monthly payments by as much as 85%, depending on your ability to pay. Projected income and living expenses are calculated so that the payment is affordable, and most IVA’s are only five years in duration. At the end of that period the remainder of the unpaid debt is written off by the creditor.

The creation of an IVA may require an ‘interim order’ to be obtained by the IP in order to freeze interest and charges and stop any legal proceedings such as bankruptcy that the creditors may be pursuing. IVA’s only apply to unsecured debts such as personal loans, credit cards, store cards and overdrafts, HP vehicle contracts cannot be included.

If you have only two creditors, usually both must agree to the settlement terms; if more are included there must be a majority agreement (75%) based on the amount owed to each creditor. Most creditors will accept such an agreement, as they are likely to collect more from you than if bankruptcy is declared, and they can get tax relief for any debt they write off.

You can expect substantial fees to be charged for the creation of an IVA, and they are generally taken out at the start-up of the program. In addition, the payment agreed upon by the creditors is fixed, so even if your income decreases during the repayment period, your payment will probably not be reduced. Failing to make payments as stated in the IVA agreement may very well result in bankruptcy and repossession even if part of the debt has been paid.

The advantages, however, are considerable if you qualify for this program. Chiefly, you will probably not have to pay back all of the money owed. Once the creditors have agreed to a specific amount they will accept (often substantially less than what is owed), and you have completed the payments over 60 months or other approved time period, your debt is completely cancelled.

Other plus factors in an IVA are your ability as a debtor to continue to maintain banking relationships, and the fact that your difficulties will not be published in the local newspaper (as would be the case with a bankruptcy). As a rule the procedure in an IVA situation is more flexible and less stressful than dealing with the alternative. Be aware, however, that an IVA continues to reflect on your credit reports for six years, and if you can’t make the payments, you may still have to declare bankruptcy and/or have your home repossessed.