With the help of an insolvency practitioner (IP) which are typically lawyers or accountants, debtors could create an agreement with their creditors to pay all or part of your debts.
Your IP would determine how much you would be paying, and will divide this money to your creditors. Insolvency practitioners are people who are licensed to act on behalf of individuals during financial distress.
Unlike bankruptcy, IVAs give you more control of your assets, and are also approved by the court. Also IVAs stop your creditors from taking legal actions against you. IVAs are not available for Scotland, but there’s a similar solution to it: protected trust deeds.
How to get an IVA? The IP would first create the proposal for the creditors. While creating, an IP could apply for an interim order.
An interim order will protect the debtor from any actions against them from the creditors while the IVA is being put in place. This will provide ample time to prepare the proposal. When an application is made, the IP will report to the court before the proposal stops to have effect.
The IP would then arrange a meeting with the debtor’s creditors. Then, the creditors will decide whether or not to approve the IVA. Creditors can’t be forced to approve the IVA, but if the proposal has the best offer, it’s most possible that the creditors will approve your proposal.
IVAs need ¾ vote of all your creditors in the meeting so this will get approved. They could also approve the IVA but would ask for modifications or changes on the proposal. If the debtor needs more time to consider the modifications, they will be given 14 days, then the meeting can be adjourned. If the debtor agrees, the IVA is then approved on the same day.
The Cost of IVA. A fee from the IP can be expensive, and depends on the work that they’d be doing. There are no professional nor legal guidelines on how much an IP should be charged for an IVA, but it could cost around £5000.
Why would an IP charge such a high fee? During the period of an IVA, an IP works multiple roles:
- Adviser – advises whether an IVA is right for you
- Nominee – assist the debtor with creating an IVA proposal for the creditors, set up a meeting, and make an application to the court.
- Supervisor – once approved, IPs ensure that the creditors get the regularly scheduled installments and be in between the debtor and creditors if anything changes on the agreement
Some IPs offer advice for free or with a reduced price. Other IPs will request paying the full fee before creating the proposal.
Others will include the fees on your IVA. Charges would be added to your month to month payments. At the point when you make your regularly scheduled installment into the IVA, a part of the money will go to pay the IP and the rest will go to the creditors.
Why choose to have an IVA?
- You could still keep your property
- You could still own a business
- You could keep your job (bankruptcy can affect your employment)
- Keep a part of your income
- Avoid social impact
If you have assets, such as, a vehicle or a home, it’s possible to keep these as opposed to utilizing them to pay your creditors. Your IP would assist you on working out with your creditors to keep these outside the IVA.
Also, you could still use your bank accounts without declaring it to the bank, unlike when declaring for bankruptcy, you’re barred from opening accounts or taking out credits.
The Risk of IVAs. In the event that your conditions are probably going to change on a short-period of the, an IVA may not be the best option. If you can’t keep up with your payments, the IVA could fail, and would lead to legal actions, or your creditors will request from the court so that you’ll be declared bankrupt.
Also, from the application itself, if the creditors rejected your proposal, you would need to look for another option to settle your debt.
Also, if you’ve started an IVA and it didn’t work out, it could lead you to worse scenarios because you’d still need to pay for the fees for your IP. That’s why you need to think twice if IVA is right for you.
Debts included on an IVA
- Personal loans
- Credit cards
- Gas and electric arrears
- Council tax arrears
- Water arrears
- Payday loans
- Store cards
- Income tax and national insurance arrears
- Tax credit or benefit overpayments
- Debts to family and friends
- Any other outstanding bill, for example solicitor’s costs, invoices for building work and veterinary bills
Debts excluded on an IVA
- Mortgages and secured loans
- Hire purchase agreements
- Court fines
- TV Licence arrears
- Student loans
- Child support arrears
- Social fund loans
Your debt in an IVA. Once your creditors agreed to your proposal, you’d be making monthly payments for 60 months or 72 months.
Lump Sum IVA. Lump sums can shorten the time of your IVA. Money from a third party like a family member, employer, friend, proceeds from the sale of a house, or from an insurance claim can help you out to proceed with a Lump Sum IVA.
This could last usually for 6 months, and subject to changes depending on the support you get from third parties.
Can joint debts be part of an IVA? IVA stands for Individual Voluntary Arrangement. That means this arrangement is only for one person. But what about joint debts? Even if the joint debt is registered through an IVA, the other person will still be responsible for paying the remaining balance.
Interlocking IVA. You can’t register on an IVA with two names, so for 2 people who have a joint debt who are struggling to settle the debt, they should both apply for an IVA. Once both of the individuals have created their own IVAs, the joint debt will be linked or “interlocked”, and would make joint payments.
With Getting out of Debt UK, we’ll help you determine if an IVA is best for you, and you’d still avoid economic challenges. Contact us today to arrange a free consultation.