IVA Disadvantages
Individual Voluntary Arrangements (IVAs) have a number of disadvantages which anyone contemplating this course of action should think about before entering into the IVA agreement.
- Monthly IVA payments can often be increased if the debtor earns more but are far less likely to be reduced. An IVA repayment is set at a “reasonably affordable” level at the outset; so the agreements are often “failed” if the debtor cannot meet the IVA repayments due to significant changes in circumstances. In such cases the debtor may end up being made bankrupt anyway.
- At least 75% of creditors who actually vote – many often dont actually vote at all! – have to vote in favour of an IVA. Therefore if the debtor has a creditor who is responsible for more than 25% of the total debt, and such creditor votes against the IVA, then the IVA proposal will actually fail. There are a small number of creditors who will vote against normal IVA’s. However a small value creditor – no matter how legally aggressive – would automatically be bound by the terms of an IVA if the majority of other creditors vote in favour
- In pure financial terms a debtor without assets or significant income would be better off applying for bankruptcy. After the new Law on bankruptcy was passed under The Enterprise Act a first time bankruptcy now only lasts for one year with a repayment period of 12 months to 36 months (Income Payments Order). In an IVA the repayment period lasts normally for 60 months so the debtor is committing to repay for a longer period than would be the case in bankruptcy. Obviously many people will opt for an IVA to avoid the social stigma of bankruptcy, however if the IVA creditors refuse to accept the proposed IVA then the debtor should look seriously at bankruptcy.
An IVA is unique to each set of individual financial circumstances. There may be situations where an IVA is a disadvantage in one in a 1000 cases e.g. under the new Licensing regulations for Publicans an IVA automatically means loss of License – and therefore an inability to provide income – whereas previously only a bankruptcy would have impacted in this way. Whatever your circumstances please contact us either via our enquiry form or by calling freephone 0800 043 50 43 to determine whether an IVA will leave you at a disadvantage.