What is an Individual Voluntary Arrangement?

What is an Individual Voluntary Arrangement?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you
and the people you owe money to (your creditor). It is an alternative to bankruptcy.
An IVA proposal sets out how you are going to repay the creditors either by way of
instalments or a lump sum (sometimes both) usually over a period of five years. After the
five years the rest of the debts are written off.
An Official Receiver will contact your creditors and make proposals of repayment on your
behalf. The proposals have to accepted by at least 75% of the debt represented by the
creditors before the IVA can proceed.
IVAs are set up by a licensed insolvency practitioner.
Am I eligible?
To qualify for an IVA you must:
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have a regular income from employment or pensions (you can apply if you are self
employed but the self employment should produce a regular income)
have disposable income of at least £100 per month
have at least three debts with two or more different creditors
have at least £15,000 of debt (due to the high costs of an IVA)
be able to keep up payments on secured debts, mortgages and secured loans
be given appropriate debt advice
not have any disputed debts
What is the IVA protocol?
Most IVAs are now protocol compliant. The IVA protocol is a set of voluntary guidelines
which many insolvency practitioners (IPs) follow. The guidelines cover how a
straightforward consumer IVA should be put together and how the IP should behave. The
protocol has been set up to make the IVA process quicker and simpler. Under these
protocols a proposed IVA should be accepted without modification and if the creditors vote
against it, they must disclose their reasons to the IP.
Make sure you ask about the IVA protocol before you agree an IVA proposal with your IP.
If your IP says that your case is not straightforward and you cannot have an IVA that
follows the protocol, make sure you understand why or get further advice.
Can I include all my debts?
You can include most of your debts in an IVA, including priority debts, but your creditors
may object - see ‘What is an IVA?’ (above). The following debts cannot be included:
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maintenance, or arrears of maintenance, ordered by a court
Child Support Agency arrears
magistrates' court fines
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mortgage, secured loan or rent arrears unless your lender or landlord agrees (which
is unlikely)
student loans
If you have a hire purchase agreement you will need to check your contract as it may
include a clause enabling the creditor to cancel the agreement if it is included in an IVA.
What happens to my home?
If you are a home owner, your IP will normally want to include a special section within your
IVA proposal called an ‘equity clause’. This means that during the IVA (normally in year
four) you would be expected to apply for a secured loan or re-mortgage to pay back some
of the debt. If you cannot do this, your IP may want you to sell your home instead.
Approximately six months before the end of the IVA you will be expected to re-mortgage to
release any equity over £5,000 up to a maximum of 85 per cent of the valuation less any
outstanding mortgage. The equity released is distributed amongst creditors. The remortgage payments must not be more than 50 per cent of your monthly payments to your
IVA and the new mortgage must not be longer than the existing term or go past your
retirement age. The re-mortgage repayments are then deducted from your IVA payments.
If, after that, your IVA payments fall to below £50 a month, your IVA will be concluded.
If you are not able to re-mortgage, your IVA can be extended for up to 12 months rather
than make you sell your home.
What happens to other assets?
IVA rules on assets are not as strict as bankruptcy rules. Vehicles are excluded unless
offered as a lump sum. A family will be allowed two vehicles. Any vehicles on HP, where
there is no cancellation clause in the agreement, can continue for the term and be included
as expenditure but when the term ends the IVA payments will increase. There may even
be protection for buy to let properties. Other assets may be kept if someone else is willing
to pay for them. However, items of worth such as jewellery and endowments may be taken
as an asset. Any inheritance or other monetary gain will be passed on the creditors.
What happens if my money goes up or down?
The IP will carry out a review of your income and expenditure every 12 months. If your
income increases, you will be expected to increase your IVA contributions by 50% of the
net surplus. If you are made redundant during the IVA you will have to pay any monies
received that are equal to more than your previous six month’s take home pay. If your
income decreases, the IP can reduce your payment by 15% without the creditors’
permission.
You could also be allowed one payment break of up to six months. Your IVA will be
extended accordingly. If you fail to disclose any income, assets or debts the IP can extend
your IVA and you may be committing a criminal offence.
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What happens if I default on the payments?
If you default on the arrangement you will be given the chance to remedy and/or explain
the default. If you fail to do this the creditors can vary the terms of the IVA, bring the
arrangement to an end, or make you bankrupt.
How else will an IVA affect me?
Your IVA will be registered on the Individual Insolvency Register, which is a public
document, until it is completed or terminated. Records of IVAs are normally held on credit
reference agency files for six years from the date the IVA began or until the IVA ends if this
is longer, but will be marked ‘complete’ once the agencies are informed of this by the IP.
You may continue to find it difficult to get credit even after the IVA has been removed from
your credit file as some lenders ask if you have ever had an IVA or been bankrupt in the
past.
IVAs do not hold as much stigma as bankruptcy. Neither will you have the same
restrictions as you would if you went bankrupt, for example, you do not have to inform your
bank if they are not a creditor. It is also easier to continue running a business and it is
unlikely that you would lose your job, as you may do if you became bankrupt. However it
is always advisable to check that your profession will not be affected by an IVA. You will
not be able to take out any unsecured credit while going through an IVA and you will have
to maintain a strict budget.
All interest and charges on your unsecured debts will be frozen. Providing you keep to the
terms of your arrangement, you will be protected from any further enforcement action by
your creditors.
Other IVAs
Not all IVAs follow the protocol, especially where there are disputed debts or investment
properties. Lump Sum IVAs are available for those who have a low disposal income but
access to a capital, including through the sale of their home. Some IVAs are a mixture of
both installments and a lump sum.
An IVA can be granted even during bankruptcy.This is called a fast-track voluntary
arrangement (FTVA) and you can apply for it by putting a proposal to the official receiver
after you have been made bankrupt. Seek advice if you think this may be relevant to you.
How do I find an Insolvency Practitioner?
Be careful of fee paying organisations who say they will find an IP for you. A directory of
IPs is available on the Insolvency Service website https://www.gov.uk/find-aninsolvency-practitioner or the Association of Business Recovery Professionals
www.r3.org.uk or you could use one of the free debt advice agencies listed at the end of
this factsheet.
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Further help and advice
Citizens Advice Bureaux (CAB)
Legal help and advice
CAB Advice Line:
0844 4111 444
Online information:
www.adviceguide.org.uk/
Information about local CAB & opening times: www.hertfordshirecab.org.uk
Civil Legal Advice
Legal help and information
Helpline:
Online information:
0845 345 4345/0345 345 4345
www.gov.uk
The Insolvency Practitioners Association:
Valiant House
4-10 Heneage Lane
London
EC3A 5DQ
Tel 0207 623 5108
www.insolvency-practitioners.org.uk
The Association of Chartered Certified Accountants:
29 Lincoln’s Inn Fields
London
WC2A 3EE
Tel 0207 059 5000
www.accaglobal.com
Business Debtline:
Offers a free, confidential and independent helpline for self-employed people and small
businesses who have debt problems.
0800 197 6026 (Mon - Fri 10 am. - 4.00 pm & 24 hour answering machine)
www.bdl.org.uk
National Debtline:
0808 808 4000
www.nationaldebtline.org
StepChange Debt Charity (formerly CCCS):
0800 138 1111
www.stepchange.org
Payplan:
0800 917 7823
Email [email protected]
www.payplan.com
You can read and download all money advice unit factsheets from the HCC website at
www.hertsdirect.org/benefits
This information is for guidance only and is not an authoritative statement of the law
PRODUCED BY THE MONEY ADVICE UNIT
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