8th May '08 - Who Needs an IVA?
On the face of it, an Individual Voluntary Arrangement, more commonly known by its acronym, IVA, seems too good an opportunity to miss if you are in a position of extreme financial distress. An IVA allows you to pay back your creditors a percentage of what you owe them and, after a typical period of three-five years’, they agree to write off the balance. For people who are struggling with debt problems, therefore, an IVA offers a way to wipe the slate clean and creditors are still able to recoup the major proportion of what they are owed.
An IVA is a formal agreement which needs to be reached between the debtor and 75% of the creditors. Its terms are registered with the local county court. Because of its formal nature, the IVA needs to be drawn up by a professional – an insolvency practitioner – who will also negotiate its agreement with the debtor and administer and monitor all payments made in accordance with its terms.
The role of the insolvency practitioner is to persuade the creditors that every effort is being made, from the funds available, to satisfy the outstanding debts. Those funds under consideration will include not only all income but also any available assets. Nevertheless, those assets which are considered essential to the debtor’s basic needs (for example, housing, the means to travel to work and other daily essentials) would not have to be sold to repay the debts. This reflects the kind of safety net which would in any case be preserved by the courts in the alternative event of the debtor’s bankruptcy. Indeed, a basic selling point to creditors of the IVA is that it should secure at least as good a repayment of their debts as forcing the debtor into bankruptcy.
After an agreed period of time, any remaining balance of debt is wiped clear and the debtor has no further obligation to the creditors.
An IVA should certainly not be viewed as a means of “getting away” with debts and should not be the first or only course of action pursued by anyone with debt problems. An IVA carries its own costs and you should compare an IVA plan against other options such as debt consolidation and other debt management solutions before you go in the direction of an IVA.
Your credit rating, for example, which has probably taken a setback or two while your debts mounted, will take a further blow the moment you agree an IVA. Furthermore, one of the conditions of the IVA will be your prevention from taking on any further credit agreements at least until the completion of the term of the IVA (since the IVA is designed to get you back on your feet again, and not encourage you to take on still further debt).
The direct, financial cost of an IVA lies in the fee you will need to pay to the insolvency practitioner. This will be a solicitor, an accountant or one of the very many specialists you will see advertised on the internet. These fees are not insubstantial and will be added to the total amount recoverable under the terms of the IVA.
As with all financial decisions, an IVA is not to be entered into lightly. Seek debt help and debt advice; compare IVA plans against other solutions such as debt consolidation; and generally research all your options so that you can get yourself free of debt in the easiest way possible.
In summary, an IVA offers those with more serious debt problems a way of wiping the slate clean and starting again without any debts. An IVA will:
- Need to be agreed with 75% of your creditors;
- Will typically last between three and five years, at the end of which the balance of any remaining debt is written off;
- Some, but not all, of your assets may need to be sold to raise sufficient funds to satisfy your creditors;
- Your credit rating will be adversely affected – but not as much as if you had a County Court Judgement or were declared bankrupt;
- Fees will need to be paid to the insolvency practitioner instructed to draw up and administer the IVA.
The author of this debt management and IVA article is Charles Wells.
This article does not represent ‘financial advice’ as each individual's personal requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person with whom you arrange financial services such as IVAs, loans or debt management plans.
The views in this article represent those of the author and not those of Netbasic Limited.
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