22nd May '08 - Why IVA Debt Advice is Given
Individual Voluntary Arrangement, or IVA, debt advice is likely to be given when other debt management measures have failed or to forestall other, more punitive actions, from your creditors such as seeking a county court judgment or a Declaration of Bankruptcy. For example, debt consolidation has not released the funds you need to repay your debts and your debt management plan has not found favour with your creditors. At the same time, you want to avoid your creditors taking legal action by seeking a county court judgment against you, or, even worse, seeking your bankruptcy. Caught in the middle like this, you could well be advised to draw up an IVA.
Compared to the debt management plans you might have tried before, an IVA has the advantage of being a legally binding and formal arrangement, registered with your local county court. Because of its formality and legal backing, an IVA can count for more with your creditors, especially if your debts are reasonably large (anything over £15,000, for example) or have been causing problems over an extended period of time.
It is useful to think of an IVA as a somewhat more formal debt management plan. Like the latter, an IVA will involve your drawing up a complete list of all your debts, declaring all of your income, and subtracting from this your regular, essential expenditure (on things like mortgage repayments or rent, utility bills, transport, court-ordered payments and food). The balance between income and expenditure is what you have left to try to meet the repayment of debts.
If your creditors (a majority of three-quarters of them, according to the value of the debts) agree to your proposed IVA plan, then you have a legal obligation to make the repayments over the three or five year period which it is generally intended to run. At the end of that time, however, any remaining balance of debt is written off by your creditors, with the agreement of the court.
So, it is important to remember that as an IVA still requires the agreement of your creditors, it needs to be persuasive and convincing. One of the ways in which agreement is often sought, for example, is by offering fairly significant lump sum payments at the outset, as an expression of your determination finally to get the debts under control. The lump sum payments would then be followed by regular monthly payments of as much as you can afford, but will typically be in the region of £200 or so each month (since IVAs are usually advised in relation to larger debts).
Given the legally formal nature of an IVA, it needs to be drawn up by a professional insolvency practitioner – an accountant, or lawyer, or one of the specialist firms that are widely advertised. The insolvency practitioner will charge (a not inconsiderable) fee for his services and this will be incorporated into the total funds collected under the IVA.
To conclude, IVA debt advice might be given if:
- you have reached a kind of “half-way” stage in your debt problems – informal attempts at debt management have not found favour with your creditors, but you want to prevent things progressing to a county court judgment or bankruptcy;
- an IVA still needs to be agreed by the majority of your creditors (75% by value);
- creditors are likely to be more convinced by the formal and legally binding nature of an IVA;
- the insolvency practitioner’s fees will be included in the total sums recovered under the IVA.
This IVA article has been written by Charles Wells.
This article does not represent ‘financial advice’ as the individual requirements of each person will be unique to their own specific needs. If there is something in the article which you would like 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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