What is an IVA?

An Individual Voluntary Arrangement “IVA” is a formal arrangement governed by The Insolvency Act and Rules which allows an individual to offer a payment plan to their creditors. The payment plan is usually over 5 years. The reason it is 5 years is that creditors believe that most individuals will agree to take a loan over 5 years and as such they consider a 5 year term as reasonable. The average debt level for IVA’s is around £30,000 but it is possible to do IVA’s with debt levels as low as £10,000 to £12,000 although the decision to enter into a formal payment plan over 5 years to clear this low level of debt certainly needs careful consideration. The reason for this is that it may be possible to clear the debt sooner anyway and also debt management plans can sometimes provide a better alternative – they can help reduce debt payments whilst the individual is struggling and debt payments can then increase as finances recover. It is also possible to settle the debt at a discount, once an individual has been on a plan for a period, via a Full and Final Settlement. An IVA really becomes an extremely helpful rescue tool when an individual has a serious level of debts that they simply cannot afford to repay over a five year period. For example, a debt management plan with contributions of £200 would take in excess of 25 years to clear but 5/6 years in an IVA.  There is a protocol which governs particularly what level of investigation insolvency practitioners should undertake before firstly recommending an IVA plus the work that they need to do whilst drafting the IVA proposals. The protocol was negotiated during 2008 by working parties made up of insolvency professionals, creditors, debt charities and was headed up by The Insolvency Service. The protocol also considered issues such as how an IVA deals with equity in a residential property. Bearing in mind that an IVA does cover what happens to an individual’s assets and property, the most important stage of an IVA is the consultation by the Insolvency practitioner. Again protocol covers the extent to which an individual must be counselled. It is so important to understand the various stages of IVA and how it will work over the 5 year period or if shorter, the term of the IVA. The proposals must include details of all assets and this includes funds that could possibly be raised out of pension schemes (only relevant if of pensionable age). Normal household items are excluded as are(reasonably priced) cars and life policies.  It is possible to exclude assets but instead offer a 3rd party sum. Creditors will normally expect investment properties to be sold with the net proceeds paid into the IVA or alternatively for sums in lieu of the equity in investment properties being introduced into the IVA. The IVA procedure really does lend itself to self employed individuals who may end up with a combination of debts including business debt, arrears of PAYE/NIC, self assessment tax, credit card debts and loans, personal guarantees, etc. It is also possible to get agreement to a full and final settlement IVA. Instead of offering contributions over 5 years, a 3rd party sum of money is offered instead. These type of IVA’s generally are appropriate if you can demonstrate that you have little or no surplus income but a friend or family is able and prepared to offer a lump sum into the IVA to settle your debts. For more information please visit Full and Final IVA. All debt solutions should be very carefully considered. If it’s appropriate for us to charge fees we detail this in our consultations with clients. For further information on fees, please see the FAQ section of the different solutions available. Our IVA experts -  The Debt Advisor complies with the Consumer Credit Act and always offers a cooling off period of 7 days. The Debt Advisor and The Business Debt Advisor are regulated by both DEMSA (Debt Managers Standards Association) and DRF (Debt Resolution Forum). This means they adhere to their codes of conduct.