An Individual Voluntary Arrangement (IVA) is a legally binding agreement. It is a viable alternative debt solution to personal bankruptcy as both the debtor and creditor will receive a better deal. The key to approval is offering the creditor a better deal than they would receive from bankruptcy.
How is an Individual Voluntary Arrangement Approved?
The minimum creditors will normally approve an IVA for is 25 pence in the pound. At least 75% of creditors, in terms of value, must vote in its favour to be approved. If this doesn't happen, a strong possibility exists that the debtor will be made bankrupt.
The Cost of an Individual Voluntary Arrangement
It isn't possible to commence an IVA without the services of an insolvency practitioner. The cost does vary considerably, but it is generally about £6000. The cost isn't an up-front charge, it is taken from cumulative monthly contributions paid in by the debtor.
Providing an Annual Breakdown of Incomes and Expenditure
A requirement is that the debtor provides the Insolvency Practitioner with a full breakdown of income and expenditure. This is used to determine whether more money can be paid into the IVA. Any overtime worked will be divided on a 50/50 basis.
An Individual Voluntary Arrangement Prevents Creditor Harassment
An IVA is a legally binding agreement between a creditor and a debtor. Provided the monthly premiums are paid, any creditor harassment is illegal. This means that there won't be any further communication from creditors.
Protect the Family Home
The majority of debtors pursue an IVA, as opposed to personal bankruptcy, to protect the family home. Declaring bankruptcy will normally result in a house being auctioned and the proceeds of the equity disseminated to creditors on a pro rata basis.
A debtor will normally be expected to remortgage at the end of year 4 to raise money towards the agreement. However, this will be based upon affordability as a debt solution that places a debtor back in the same position they were in before would be futile.
Professional Status
An Individual Voluntary Arrangement allows professionals to maintain their job and status. This is critical for those working in finance, accountancy, government and the legal profession. Personal bankruptcy would almost certainly result in instant dismissal.
The IVA and Anonymity
Unlike personal bankruptcy, an IVA isn't printed in the local press or London Gazette. However, the agreement will show on the government insolvency register, but very few people know about this, let alone check it.
Completion and the Discharge of Serious Debt
Once 60 monthly payments have been made, the debtor will be discharged from the remainder of their debts and be completely debt free. The insolvency practitioner will present their client with a certificate of completion; it is the responsibility of the debtor to forward this to all three major credit reference agencies.
An Individual Voluntary Arrangement is a debt solution that offers a number of advantages over personal bankruptcy. However, those with serious debts should consider declaring bankruptcy unless they are a home owner, have gambling debts, are a professional or seek complete anonymity.
Those who found this article useful may also be interested in finding out more about Debt Management Plans and tackling credit card debt.
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