Avoid Personal Bankruptcy with an IVA
Individual Voluntary Arrangement - Debt Solution to become Debt Free
Sep 11, 2008
The heavy stigma associated with personal bankruptcy meant that people struggled on with serious debt problems to the detriment of their health. An Individual Voluntary Arrangement is a debt solution that allows someone with financial difficulties to write-off debt after 60 monthly payments.
What Constitutes Serious Debt?
For the purpose of commencing an Individual Voluntary Arrangement, a debtor should have unsecured liabilities of at least £15,000. Those that owe less than this amount should really consider an alternative debt solution, such as a Debt Management Plan.
Who is an Individual Voluntary Arrangement Right For?
An Individual Voluntary Arrangement is an excellent debt solution, but it isn't suitable for everyone. The most likely beneficiaries are listed below:
- Home owners. Declaring personal bankruptcy would almost certainly result in the loss of the family home. An Individual Voluntary Arrangement allows a debtor to keep their home, although they will be expected to remortgage at the end of year 4;
- Professional status to protect. Certain professions, such as being an Accountant or Lawyer, require that someone should not be declared bankrupt. Entering an IVA allows a debtor to keep their professional status;
- Gambling debts. If someone has acquired gambling debts, a Bankruptcy Restriction Order (BRO) may make mean that someone isn't discharged for up to 15 years. Those who enter an Individual Voluntary Arrangement don't have their finances scrutinized nearly as deeply as bankrupts;
- Avoid publicity. Those that don't want their insolvency to be made public should consider an Individual Voluntary Arrangement. Although an IVA is entered on the Insolvency register, it isn't advertised in the local paper.
How Is an Individual Voluntary Arrangement Established?
In order to pursue an Individual Voluntary Arrangement, it is necessary to employ the services of an Insolvency Practitioner. The fee is generally taken from the cumulative contributions at the end of the IVA's 60 month term.
An Individual Voluntary Arrangement is a legally binding contract between the debtor and any creditors for all unsecured debt. In order for an Individual Voluntary Arrangement to be established, a meeting is held and 75% of creditors, in terms of value, must agree to it.
The insolvency practitioner will inform their client of the outcome. If agreed, an Individual Voluntary Arrangement is binding on all creditors and not just those who voted or agreed to it.
What Happens Once the Individual Voluntary Arrangement is Agreed?
If 75% - in terms of value - agree, the Individual Voluntary Arrangement is now in place. All that a debtor needs to do is set up a standing order to pay the monthly contribution. This will normally be distributed to creditors annually.
Each year a debtor will be expected to provide financial information regarding income and expenditure. They won't be asked to prove where the money has gone, although it is a good idea not to list too many unnecessary expenses. Wage slips will be required.
Does an Individual Voluntary Arrangement Really Write-off Debts After 60 Months?
Once 60 monthly payments have been made, the Individual Voluntary Arrangement is now complete. The insolvency practitioner will provide a certificate of completion which needs to be sent to the 3 major credit reference agencies.
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