IVA's or Individual Voluntary Arrangements were introduced by the government as part of the Insolvency Act 1986 as a way for people to overcome debt problems without resorting to bankruptcy. Under the terms of the IVA you commit to paying a single affordable monthly payment for a fixed period of time. These payments are then distributed to your creditors to pay off your debts. At the end of the IVA any remaining debts will be written off leaving you debt free.
To qualify for an IVA you must usually have debts of greater than £6,000 which you are unable to repay even through the release of any material assets you may have. These debts will generally need to be spread between at least two or three different creditors. You must also have a regular income and be able to make payments sufficiently high enough to satisfy your creditors.
The exact amount you pay each month will be negotiated with your creditors. In short you will be expected to pay as much as you can reasonably afford based upon your current earnings and expenditure. You will be expected to live reasonably and so you should have sufficient income to meet essential domestic needs i.e. the cost of food, clothing, rent/mortgage/ utility bills, insurance and child care etc.
There is no fixed standard amount of debt that will be written off by entering into an IVA. The exact amount will be dependent on negotiations with your creditors based on what you can reasonably afford. In general however creditors are unlikely to accept an IVA in which more than two thirds of the debt is written off.
Legally the maximum length that an IVA can last is seven years. Generally however IVA repayments will usually be made for a period of up to five years (sixty months). Individual Voluntary Arrangements allow a large amount of flexibility and so the exact repayment period will vary significantly from case to case.
IVA legislation only applies to England, Wales and Northern Ireland. The Scottish equivalent of an IVA is known as a Trust Deed. To qualify for a Trust Deed you must be a resident in Scotland. Trust Deeds are similar to IVA's in that they intended to help people to overcome their debt problems without filing for bankruptcy.
Where Trust Deeds differ from IVA's is that they are designed to last for a fixed period of 48 months rather than the 60 month repayment period of an IVA.
While the answer to this question will depend on your own financial circumstances, IVA's do have a number of advantages over bankruptcy. An IVA is a private agreement between yourself and your creditors and unlike with bankruptcy your name won't be printed in your local newspaper. Individual Voluntary Arrangements also usually allow you a greater amount of flexibility and control over your debt repayments.
Every person has a personal credit rating based on their previous credit history and other factors such as age and employment status. Anyone entering into an IVA, or indeed bankruptcy, will have this included in their credit file for six years before it is removed.
If you are self employed and you are having problems with debt, then in certain circumstances an IVA will be the best possible solution. An IVA however will only be appropriate if you have debts of at least £8000.
Should a change in circumstances mean that you are unable to keep up with your payments then your IVA supervisor can recommend that your creditors accept an IVA Variation Order, the Variation Order, if accepted, will alter the original terms of the IVA and may include a reduction in your monthly repayments. If a Variation Order isn't appropriate then the IVA will fail, the likely outcome of which being bankruptcy.
At the end of the repayment period all remaining debts will be written off. Your IVA supervisor will inform your creditors that the arrangement has been successfully concluded and your credit history will be updated.
For an IVA to be accepted you must usually have a regular income mostly likely through employment. However in some cases creditors will approve an IVA in which the payments are made by a partner or relative.
The purpose of an IVA is to allow viable businesses and individuals to continue to trade by removing the burden of debt and the threats of legal action. Businesses can struggle due to a multiple of reasons beyond their control and bankruptcy or liquidation may not be the most suitable options for the traders, creditors of employees. In bankruptcy and liquidation not only do creditors lose what is currently owned, but the possibility of future recovery by way of ongoing business, is removed.
HM Revenues and Customs consider all voluntary arrangements on an individual basis and will support those where:
IVA Advice.org.uk has helped thousands of people throughout the UK to find solutions to their debt problems. To have you IVA questions answered call our free IVA helpline 0800 043 50 43 or complete our enquiry form.
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Total unsecured debt : £4000