16th May '08 - When Debt Advice Points to an IVA
Your debts are out of hand. You owe more than £15,000 to a variety of creditors, so you seek debt advice. Although you are in work and have an income that would allow you to repay approximately £200 each month, neither debt consolidation nor the debt management plan you have suggested to your creditors has found favour. Your debt advisor therefore suggests an Individual Voluntary Arrangement (IVA) with your creditors. What does he mean?
An IVA is a formal, legally binding agreement with your creditors in which you agree to repay a percentage of all your outstanding debts on the understanding that the remaining balance will be written off and considered to have been settled after an agreed period of time (usually 3-5 years).
Because of the formal nature of an IVA and the cost of setting it up, it is generally reserved for larger debts (a combined total of a sum greater than about £15,000 would be typical) and relies on your being able to demonstrate a steady enough income to repay significant amounts each month – most advisors would recommend a minimum repayment level of around £200 a month, for example.
Because of the legal formalities of an IVA, it also needs to be set up by a registered professional, called an insolvency practitioner. This will incur fees, which are incorporated into – and therefore added to – the payments made under the IVA.
The insolvency practitioner will help you draw up a detailed account of all your sources of income and expenditure in order to work out the level of repayments you can offer. You will need to check carefully the commitment you are making in the proposal and sign it.
Once the IVA is drawn up, an application can be made to the court for an Interim Order, which has the effect of preventing your creditors from taking legal action (seeking a county court judgement, for example) to recover their debts.
In order to secure the creditors’ agreement of the IVA, a creditors’ meeting is called by the insolvency practitioner. You should also attend this meeting. Approval of the IVA requires the support of creditors to whom 75% of the monetary value of the debts is owed. Those who choose not to vote are assumed to have indicated their approval of the arrangement.
Once the IVA is agreed, your insolvency practitioner will continue to monitor your repayments under what is now a legally binding agreement. He or she will also keep your financial situation under review during the course of the IVA and report any changes in your financial circumstances. At the end of the agreed period of the IVA, however, and provided you have maintained all the payments due, you are declared free of all the debts incorporated in the IVA, no matter how much has actually been repaid.
To summarise, when you seek debt advice, it might be suggested that an IVA is appropriate if:
- Informal arrangements such as debt consolidation or debt management have failed;
- The amount of debt outstanding is relatively large and spread between two or more creditors;
- Your circumstances allow the repayment of regular, relatively large sums each month;
- You can commit to repayments over a period of up to 5 years.
The author of this IVA article is Mike Magners.
This article does not represent ‘financial advice’ as everybody's individual requirements will be unique to their own specific needs. If there is something in the article which you want to rely on, please ensure you check those details with the person or business with whom you arrange a financial service.The views in this article represent those of the author and not those of Netbasic Limited.
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