IVA - UK Government IVA
If you have debts that you cannot afford or are facing bankruptcy, an IVA can relieve you; using Government legislation, you can have up to 75% of your debt written off.
What is an IVA?
IVA is short for Individual Voluntary Arrangement,
a formal arrangement of new terms between the debtor and their
creditors. The terms are usually a compromise on the debt, which
allows the creditor to recover at least some of the debt owed.
In most cases an IVA leads to; the interest being frozen, reduction in the total amount of debt and legal protection from creditors as long as the debtor adheres to the terms of the IVA.
Creditors may agree to an IVA because it is an opportunity
to recover some of their money, they'd risk loosing out on all the
money owed if the debtor goes bankrupt.
Do you qualify for IVA help?
In general, there is no maximum or minimum level of debt nor
is there a maximum or minimum level of repayments.
However, An IVA is feasible if you meet the following requirements:
- Have at least £15,000 of unsecured debt
- Can afford at least £150 a month for payment into the IVA
- Insufficient surplus disposable income to meet the contracted credit repayments (i.e. can't afford debt repayments)
Benefits of an IVA
- An agreed portion of the total debt is usually written off at the end of the IVA. The amount written off depends on the total amount that you owe and can be up to 75%.
- Whilst within the IVA, as long as the agreed payments are made, you will be protected from further interest charges and any legal action.
- You would still be able to operate a normal current account as long as it does not have an overdraft facility.
- An IVA does not affect your professional status or the ability to hold public office. Your IVA information would not be made public, unlike in bankruptcy cases.
- Via the insolvency practitioner, you would be involved in the choice of assets made available to the creditors.
Effects of an IVA:
Risk to your assets
Although an IVA carries less risk than a bankruptcy, assets such as your home, savings and investments are still at risk if creditors decide not to exclude them. However, it is more likely that creditors would focus on savings and releasable assets such as endowment policies, premium bonds or ISA's. The home remains relatively untouched except for the possible release of some of the equity available at the end of the IVA.
Effect of your future credit
IVA's do impair your credit worthiness: Because the IVA information would be accessible via a credit check, you will not be able to get credit whilst the arrangement is in place. Once the IVA has ended, you might still find some difficulty getting approved for credit, especially with mainstream lenders.
How does an IVA work?
First, you need to find an authorised Insolvency Practitioner (also refered to as an IVA Practitioner) to act on your behalf. You may find information on IVA practitioners in your local Official Receiver's office or on the internet.
- If necessary, the IVA practitioner will help you apply to the court for an "interim order". This prevents your creditors from presenting or proceeding with a bankruptcy petition against you while the interim order is in force. It also prevents them from taking other action against you during the same period without the permission of the court.
- The insolvency practitioner forwards details of your IVA proposal to the court and states whether in their opinion a meeting of creditors should be called to consider the proposal.
- If a meeting is to be held, the date of the meeting and details of the proposal are sent to your creditors.
Only those creditors who had notice of the meeting are bound by the arrangement, so it is important that you give the IVA practitioner accurate information of all your creditors' names and addresses. Otherwise, the arrangement might fail if the practitioner couldn't contact all the creditors and, therefore, bind them to it. - At the meeting, the creditors vote on whether to accept
the IVA proposals. If enough creditors (over 75% in value
of the creditors present in person or by proxy, and voting
on the resolution) vote in favour, the proposals are accepted.
They are then binding on all creditors who had notice of,
and were entitled to vote at the meeting.
- The IVA starts, the insolvency practitioner will supervise the arrangement throughout and pass payments onto the creditors in accordance with the IVA agreement.
At the end of the agreed period, and as long as you've adhered to the terms of the IVA, you will be debt free. Your creditors can no longer pursue you, even if you won the lottery!
An IVA is legally binding, If you enter an IVA without giving full details of your assets and debts or fail to fulfill what you agreed to under the arrangement, the insolvency practitioner or any of the creditors bound by the IVA may petition for your bankruptcy.
Keep in mind that IVAs are meant to be an alternative to bankruptcy, an IVA can certainly get you out of debt, but they also have downsides, such as not being able to get credit for a number of years.
Before deciding on a Government IVA, be sure to consider all other possible options, seek professional IVA advice if possible.
Related: IVA Mortgage
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