Individual Voluntary Arrangements or IVA serve as formal alternative for people in the UK to avoid bankruptcy. They were established and governed by Insolvency Act 1986 Part III. They constitute a repayment proposal presented to the creditor of the debtor though an Insolvency Practitioner. In most cases, IVA only includes the claims of the unsecured creditors, leaving the secured creditors’ rights largely unchanged. Insolvency practitioners charge the initial as well as ongoing fees aside from the debt.
IVA as a legal agreement with the creditors is contractual and it is very flexible for the person’s circumstances. This agreement is based on income, third party payments, and capital. It can also be based on the combination of these things.
The debtor having enough money left after essential expenses and priority creditors may arrange an IVA.
Creditors consider the proposal of IVA in their meeting. The return to them is usually higher than the amount they will receive in bankruptcy, so they agree to it in most cases. After their agreement, the proposal will be approved.
Originally, IVA is designed to offer relief to the generated debts resulted by business insolvency. However, the growing levels of customer debt caused many insolvents with debts not generated by business, started seek legal protection from IVA. People who have big amount of assets are turning to IVA to protect their belongings.
IVA And Bankruptcy
IVA is used as an alternative to bankruptcy but they are not exclusive mutually. Individuals can propose for an IVA after they experienced bankruptcy. If the agreement is approved after their bankruptcy, the debtors can then go to the Court and apply for an annulment of the order of bankruptcy. If the IVA proposal is made after the order of bankruptcy, the Official Receiver can be possibly nominated to supervise the arrangement. However, the arrangement provided by the Official receiver is very rare and it is only applicable in certain situations.
Through the help of an insolvency practitioner or IP, individuals can process the amount that they can afford to pay back realistically in the agreed time period, which is usually five years. Once the three-quarters of the creditors agree with the IVA proposal, the persons’ debt with its future interest is frozen.
When the agreed period ends, any debt that individuals cannot afford to settle is written off, as long as they maintained their agreed monthly IVA payments. Usually, debtors are required to pay back about half of what they are indebted of.
If a person owns a house worth higher than the mortgage, they are most likely asked to contribute from it until the end of IVA period. However, this person will not be required to sell his or her home. The further cost of the mortgage will be subtracted from IVA payment for the person not to pay more than the amount he or she can afford realistically. As long as an individual is confident in maintaining his or her regular monthly payment, IVA is a great solution for him or her. Through IVA, this person can be free of debt for five years or less.
IVA Advantages And Disadvantages
As an alternative to bankruptcy, IVA has advantages and disadvantages to the debtor. The advantages of IVA include the following:
1. It makes a fixed monthly payment that is affordable, solving the hassle of having to pay a large amount of debt.
2. It is a means to avoid property repossession and bankruptcy proceedings.
3. Through it, the interest of the debt is frozen.
4. The creditors’ legal action is stopped once the IVA monthly payments are being made.
5. Debtors can be free of debt for five years.
Although there are many good things that IVA offers, it also has disadvantages which include the following:
1. The debtor’s credit rating is affected adversely throughout the entire IVA period. This effect happens usually for a year after the completion of the agreement.
2. If equity is present in the debtor’s property, he or she typically needs to bring out some to settle debt through remortgaging during IVA period, which happens usually during the last year.
3. IVA failure can cause the creditors to petition for the debtor’s bankruptcy. However, the debts like court-imposed penalties and council tax arrears cannot be included.
4. If the debtor comes into extra money while still in IVA, this money will be taken from his or her account and he or she is expected to settle any bonus into IVA.
5. The debtor has to sell or downgrade any high value assets that he or she has.
While Individual Voluntary Arrangements are helpful in letting the debtors escape bankruptcy, it can give both good and bad consequences to people. Individuals planning to apply for IVA need to study these consequences carefully for them to have better results.