What happens when I enter into an IVA?

Last post: Dec 9, 2012

You would have to be leading a sheltered life not to be aware of the economic crisis in this country with an increasing number of people getting into financial difficulty for a variety of reasons.

You would have to be leading a sheltered life not to be aware of the economic crisis in this country with an increasing number of people getting into financial difficulty for a variety of reasons. According to research undertaken by Legal and General there are 2.5 million UK households struggling to meet their regular bills. If you are one of these people, there are a variety of ways that you can deal with your creditors. For instance, you can contact them yourself and come to a financial arrangement to repay your liabilities, you could enter into a debt management plan, you could go bankrupt or you could enter into an Individual Voluntary Arrangement (IVA). However, because of the range of options you should consider getting some free advice from the likes of the Citizens Advice Bureau or an organisation like National Debtline. To assist your research this article hopes to answer the question: What happens when I enter an IVA? 

 What is an Individual Voluntary Arrangement (IVA)? If you have got into financial difficulty, an IVA enables you to come to a formal arrangement with your unsecured creditors. It is an alternative to you being declared bankrupt and enables you to repay a proportion of your liabilities at an affordable level within a reasonable timescale (usually 5 years) with any outstanding amounts (up to 70 %) being written off by your creditors at the end of the agreed repayment period. Interest and charges will no longer accrue on your unsecured debts.

What debts may be included within an IVA? Most unsecured debts may be included such as loans, credit cards, utility debts and council tax debts. 

 What is the process for an IVA? The agreement has to be arranged by an Insolvency Practitioner (IP) who is a licensed professional. Your IP will undertake a thorough assessment of your financial situation with you for which he or she may (or may not) charge an initial fee. It is a legal requirement that you declare details of all your unsecured creditors and assets. Your IP may seek an "interim order" from the county court to stop bankruptcy proceedings or any other enforcement procedures being taken by your creditors. You can either pay an agreed monthly amount or a lump sum or a combination of the two. Having agreed an amount that you are in a position to pay, the IVA proposal will be sent to your creditors by your IP who will arrange a creditors meeting. At that meeting, or by post, your creditors will vote if they wish to accept or turn down your proposal. You need at least 75% of your creditors that vote "by value" in favour of the proposal for the IVA to have to be legally accepted by all the creditors. The phrase "by value" refers to the amount of your debt not the number of creditors. On occasions, creditors will negotiate over the proposal, perhaps asking that you pay more each month or include assets that you would prefer not to include. Should the IVA be approved your IP will then be responsible for supervising it being put in place and periodically monitor the arrangement. Should you be unsuccessful in your application you will be "back to square one" with your creditors and need to negotiate with them on an individual basis. 

 What happens once the IVA has been set up? You will make the fixed monthly repayments to your IP who will distribute the monies to each of your creditors on a proportionate basis after deducting his or her monthly fee. As long as the repayments remain affordable the IVA will provide a means to "get back on your feet" financially without having to worry when the next demand for repayment arrives through your letterbox or a bailiff visits your home. A record of your IVA is held on the Individual Insolvency Register, that is a public record, and details of your IVA are also held on the credit reference agencies files for a period of 6 years from when the IVA is granted. Also, some financial institutions, when applying for such things as a request to open a bank account or finance applications ask whether you have ever had an IVA and this may affect your ability to get certain services/finance in the future. If you are unable to maintain the repayments during the period of the IVA your IP may be able to re-negotiate a revised repayment arrangement with your creditors or the agreement could be cancelled and you could, potentially, face bankruptcy proceedings. Once the period of the IVA has ended you are considered to be debt free with any outstanding balances owed to your creditors being written off. However, if you are a homeowner, under the terms of the agreement that you may have entered into, you may be required to realise some of the equity in the property. 

 Regardless of the path you take, being faced with the option of getting an IVA is a tough place to be and no one wants to have to ask "What happens when I enter into an IVA?". At Choice Loans we work with qualified and reputable Advisers that can offer you impartial guidance without duress or haste so you can make an informed decision about what is best for you. To get in touch either call us on 01494 410125.