Individual Voluntary Arrangements (IVA) – The process explained
The new Debt Management Protocol, designed to cut down on poor advice from misleading debt management firms that is set to be implemented in April 2014, is likely to see an increase in the numbers applying for Individual Voluntary Agreements (IVA).
The new protocol means that debt management companies will need to offer the correct advice to their customers, which may often mean recommending an IVA or bankruptcy. There is currently a tendency for some less principled debt management firms to push their clients towards debt management plans that often carry high fees, when an IVA or Bankruptcy may often be the better solution for the individual.
What is an Individual Voluntary Arrangement (IVA)?
In simple terms an IVA is a legally binding agreement made with your creditors to repay all or part of your outstanding debts. What you pay and when you pay is set out in a proposal prepared with the assistance of an insolvency practitioner or Nominee, and then agreed with your creditors. The Insolvency Practitioner will manage your agreement, acting as Supervisor, and pay your creditors in accordance with the agreed terms.
In order for the IVA to start creditors owed above 75% of your total debts need to agree to the arrangement. If they do then the IVA will apply to all your creditors, even those who may have objected. A creditors meeting is held to consider the proposal and to allow creditors to vote upon it. Creditors may modify the terms of the proposal with your consent.
Is an IVA the right option for me?
An IVA may enable you to avoid bankruptcy. If you are solicitor or accountant you can have your practise certificate suspended if you are declared bankrupt, and those declared bankrupt are no longer allowed to be company directors. This is where an IVA can be a good alternative, allowing you to continue to earn income and contribute to the repayment of your debts. In some cases it may be possible to exclude certain assets, obtain debt forgiveness or introduce third party funds in exchange for retaining assets.
An IVA will usually last between 3 and 5 years, compared to 12 months for a standard Bankruptcy Order. However you are not subject to any restrictions under an IVA other than those agreed in the proposals.
An IVA is not an easy option. The Nominee will consider all your potential assets and review your actions for any potential transactions that may be challenged if a bankruptcy were to be made. Terms of a proposal cannot easily be modified once agreed and will usually include a provision that the Supervisor petition for Bankruptcy if you default on payment.
How can I apply for an IVA?
It is only possible to apply for an IVA through an insolvency practitioner, or Nominee, such as Moorfields Corporate Recovery. Your Nominee will need to know everything about your financial situation, including all of your debts, as well as your assets. The Nominee will liaise with your creditors on your behalf and will help work out exactly what you can afford to repay and will estimate how long the IVA should last. You will have to agree to the proposals. If your proposal is deemed to be ‘fit and fair’ the Nominee will submit it to the Court and confirm it is a suitable proposal for an IVA. He will then convene a meeting of creditors to consider the proposal.
Nominees fees will vary and will usually be paid before the proposal is agreed. It is important to seek advice from a specialist at an early stage to ensure you look at all the options available to you..
Who will deal with my creditors?
As Nominee the Insolvency Practitioner will liaise with your creditors to agree proposal terms and as Supervisor, if the proposals are accepted, will ensure payment is made in accordance with the agreed terms..
What fees are involved in an IVA?
Fees for entering an IVA normally fall into two categories. These typically include a set up fee for applying for and entering into an IVA, the Nominees fee, followed by a handling fee that your insolvency practitioner will charge for acting as Supervisor. This Supervisors fee will be agreed as apart of the proposals.
Remember that if you do not keep up with your payments then your IVA may be cancelled and Bankruptcy may follow. All Individual Voluntary Arrangements are added to the Insolvency Register, where they remain until three months after completion.
If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1143.
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