IVA is the short form term used to describe an Individual Voluntary Arrangement.

IVA’s were introduced into English Law as part of The Insolvency Act 1986 – covering England, Wales and N. Ireland but specifically excluding Scotland which has its own form of IVA legislation (Scottish IVA). The new IVA legislation was enacted to provide formal help to consumers (and certain classes of self employed) with overwhelming debt problems. Prior to the enactment of The Insolvency Act many consumer debtors experiencing significant debt problems and pressure from creditors would usually have had no option but to seek the protection of the Court by petitioning for bankruptcy.

The government were becoming increasingly concerned that bankruptcy was not only the most drastic step a debtor could take, but was also actually highly counter productive. Bankruptcy is usually a “lose – lose” situation for all parties concerned as :-

• The consumer debtor risks losing all major assets including the family home
• The unsecured creditors usually get little or no return at all on the debts
• There was historically both a social and future employability stigma associated with bankruptcy providing future earnings impact for the bankrupt.

For a more in depth review of the elements relating to bankruptcy and IVA please look at the additional resource information at Avoid Bankruptcy

The IVA alternative has been called both “second chance legislation” and “government rescue legislation”. Under the legislation the debtor can propose an IVA to his/her creditors to restructure overwhelming debts where the only other alternative is usually bankruptcy.

The basic elements of the IVA are :-

• All unsecured debts are consolidated into one new IVA contract.
• One single IVA monthly payment only is made between all creditors.
• The new IVA contract usually only lasts for 60 months.
• At the end of the IVA all remaining debt is written off by creditors.
• All interest and charges automatically stop.
• Creditors must stop any legal action providing the IVA payments are made.
• Windfalls or a property value increase may need to be paid into the IVA.

IVA’s have become very popular in recent years because individuals are finding themselves with ever higher levels of unsecured credit – usually as a result of increased credit card spending – and even though struggling to keep up repayments they do not wish to go bankrupt. The general lending policies of the UK financial institutions have also helped fuel the credit boom which is likely to see insolvency levels and IVA applications increasing for a number of years to come (more than 45,000 IVAs were approved during 2006 and the feeling is that this is likely to be 60,000 during 2007).

Related Links

An overview of IVA's
How long does an IVA last?
Benefits of Individual Voluntary Arrangements