Introduction - bankruptcy is a serious matter which can have far
reaching effects for an individual. In addition, creditors are normally left
facing very little return from the debtor. As such, it is generally accepted
that bankruptcy should be avoided if at all possible. For this reason, the
insolvency Act of 1986 introduced the IVA. The IVA is designed to avoid
many of the negative aspects of a Bankruptcy procedure. What is an
IVA?....
A formal agreement with your creditors to
settle your debt over a fixed period (generally 5 years) with interest
frozen
What is an IVA?
- an
Individual Voluntary Arrangement (or IVA for short) is a formal, legally
binding solution to personal debt problems. The IVA allows someone who is in
financial difficulty to make a proposal to settle his/her debts within a fixed
period of time – normally 5 years. All interest is frozen legally and after
the end of the arrangement, outstanding debt is written off. The arrangement
is governed by the Insolvency Act of 1986.
Why Use an IVA? - an IVA
will overcome problems normally associated with other so called debt solutions
(see below). A single affordable payment is made each month each month for 60
months. Once the final payment is made Creditors agree to write off any
outstanding debt. Creditors are legally obliged to freeze all further interest
or charges. As such, the IVA offers a solution with a specific end date so an
individual knows exactly where they stand and when their debt problem will be
paid for good. Importantly, although formal, the solution is private and can
therefore be used by forces personnel and the police without damaging career
prospects.
Why Consider
I.V.A? - the problem with many debt solutions which are advertised is that
they are not legally binding. This means that although they may greatly reduce
your repayments each month, you will still have to pay all of your debt back.
Have you ever stopped to wander just how long this will take?
E.G. If you owe
£15,000 and normally repay this at the rate of £250 per month, you will be repaying
this debt for 5 years. However, if you reduce your monthly repayments to £120
per month
to fit your budget, you will be repaying your debt for at least 10 years and
even this is not a guaranteed length of time because additional interest and
charges may be added. This means that there is no “Light at the End of the
Tunnel”.
How does the
I.V.A Help? - the Individual Voluntary Arrangement or IVA is a Formal
legally binding debt solution. It allows someone who is in financial
difficulty to make a formal proposal to settle his/her debts within a
reasonable and fixed period of time. This period is normally no longer than 5
years. The repayment proposal is based on what you can afford to pay and after
you have paid for the time agreed, your debt will be settled in full.
Once agreed, an
Individual Voluntary Arrangement will also prevents creditors from adding any
further interest to your accounts or taking any further action such as County
Court Judgements.
Who Can use an
I.V.A? - the suitability of the IVA solution will depend on your personal
circumstances. Normally your personal debts must be above £15,000 with 4 or
more different creditors. You must also be able to offer a reasonable monthly
payment to your creditors. This will vary depending on the debt. However, as a
minimum you will need to be able to afford at least £200/mth.
Summary of Advantages and
Disadvantages of an I.V.A
IVA Advantages
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IVA Disadvantages |
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If you follow the agreed terms,
you will be debt free in 5 years time. Up to 70% of your debt may be
written off. |
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If you have equity in your house
or valuable assets you may be required to realise them to pay your
creditors |
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This is a legally binding solution
so no further interest or charges can be added to the debt, by law.
You also get protection against possible court action. |
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Normally, an IVA cannot be used if
your total debts are under £15,000 |
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Agreed monthly payment plans will
remain fixed unless your income level dramatically increases.
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Generally you need to be able to
afford monthly payments of £200 or more |
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It is a private agreement – only
you, your advisor and your creditors need know about it |
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You can continue to practise as a
professional person (i.e. accountant, solicitor, doctor etc) or as a
director of a company |
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The main advantages of IVA over
bankruptcy are shown below:
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Bankruptcy |
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Individual Voluntary Arrangement |
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Protection from further action
by creditors |
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Same protection against further
creditor action |
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Public Procedure with name in
local press and employer informed |
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Private procedure – nobody
informed |
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Restrictions from certain
professional rolls, police and armed forces |
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No restrictions to professional
rolls, police or armed forces |
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Restricted from further
borrowing for 6 years after discharge (potentially 8 yrs in total) |
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Able to borrow after 5 years.
Mortgage borrowing often possible after 2 years |
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Creditors often receive little
or non of the money they originally lent |
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Creditors receive a
substantially higher return: often a minimum of 25 pence in every
pound or more. |
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Regular monthly payments to
court based on disposable income |
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Regular monthly payments to
Insolvency Practitioner based on disposable income. Normally no
additional fees |
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