A Detailed Guide to Individual Voluntary Arrangements

	Want a loan NOW? Click here to email Call 0800 195 6762 Press CALLBACK Want a Debt Management plan NOW? Click Here to Email Call 0800 195 6762 Press CALLBACK

It's a deal between you and the creditors! This is a long guide so if you are pushed for time see our quick to follow IVA Flowchart, or see IVA's a quick guide if you prefer less detail

The best way to think of an individual voluntary arrangement (IVA) is as a deal between the debtor (the person who owes the money) and the creditors; the credit card companies, loan companies, people or businesses to whom the money is owed.

Think of it this way; if you are owed money by someone and they ask for time to pay it, wouldn't you probably agree? Now, if they said that they had a problem and they want to pay you say 25p in the £1 or they will have to go bankrupt and you would get 0p in the £1, wouldn't you also agree to that, as the alternative is nothing?

So, where the debtor cannot pay off his or her debts on time, or they are insolvent (for a definition of insolvency click here insolvent? for a guide) or if you are under huge creditor pressure and you cannot deal with the creditors satisfactorily, than an IVA can often be a good solution.

Making a payment on a regular, monthly basis you can bring together almost all of your debt problems (except for secured loans such as a mortgage over property, fines and Child Support Agency debts) and get on with your life.


Who should use an IVA?

It is imperative that the IVA is only used where a debtor has regular income. We know that no job is guaranteed for life nowadays, but if you have a lot of debts and if you are employed an IVA is a good option.

Alternatively, if you have a lot of assets that are tied up and you have a lot of debt, an IVA can be used as a control mechanism to prevent bankruptcy and allow time to realise those assets and do a deal with the creditors.

Generally we would advise not to use the IVA tool if you have irregular earnings, or are unemployed.

IVA's a guide

See IVA's a quick guide if you prefer less detail.

The debtor is usually under extreme cashflow pressure and cannot manage the problem. The debtor will be suffering because of firefighting creditors.

This can become all-consuming. Dealing with irate creditors is also a very tiring and lonely process. This can often lead to a downward spiral, sometimes towards ill health, alcohol abuse and sometimes bankruptcy of the individual.

If you're in this position you should follow this guide, IVA's FAQ's and also compare the other options. Prior to doing this, it is best to look at your objectives pages, do's and don'ts and your options before deciding which is the most appropriate.

After that if you have decided that the IVA is the most appropriate route, make a list of all of your creditors. Don't make the mistake of saying a creditor isn't due for payment now, include all current and future debts.

It is sensible to estimate these debts because sometimes it's impossible to make detailed and exhaustively accurate lists. The law allows for an estimated statement of your debt to be used as the basis for preparing a proposal to deal with that problem.

Then make a list of all of your assets. Put reasonable values on them and if you cannot ascertain values for assets, estimate them. Try getting an idea from similar assets or priced assets. (Use the internet to get car valuations etc). The law doesn't envisage you going out to get professional valuations for every asset because this would be too time-consuming and costly.

Perhaps the most important process to go through is to look dispassionately at the cause of the debt problems, what you earn and what your plans for the future are, your objectives.

If you are earning a living as a sole trader, often, it can be just down to removing a couple of problem areas which, if resolved, could lead to the business being viable. If however the business has never made profit, sales are not rising to the level where they cover overheads and known prospects aren't great, then an IVA is not suitable.

Now that you have established the true position of your total debt you should consider the IVA process. If you wish to discuss your information contact us - we will talk you through the issues of the IVA and how to structure a deal free of charge. Call now 0800 195 6762.

Once a decision is taken to go ahead you will need to appoint an advisor and or a nominee. An advisor would assist you in building the proposal, collating all the necessary information and dealing with all of the aggressive and passive creditors. This is a huge relief to most of our clients - we take the creditor pressure away VERY QUICKLY.

The advisor may also seek to discuss the position with your secured lenders (the mortgage company for example) the Inland Revenue and any other creditor that an IVA cannot contain (such as CSA and fines).

At some stage however a nominee is necessary. A nominee is a short name for the nominated supervisor - this is a licensed insolvency practitioner, licensed by the DTI and is usually a chartered accountant in this country.

The nominee's job is to review the proposals of the debtor produced either by the debtor himself or by the advisor in conjunction with the debtor. If he can satisfy himself that the proposals maximise creditors' interests and are achievable then he or she will put their name to the proposal and sponsor it to the court and to the creditors. It is important to remember that the proposal will be your proposal and that you may have to swear an affidavit saying that is true and correct to the best of your ability.

Writing the proposal

The law envisages that the debtor will write the IVA proposal and then ask an Insolvency Practitioner (or IP) to act for him or her. Of course the legal process is complicated and you have a living to make. Therefore, it is probably best to use experienced, pragmatic and respected Turnaround Practitioners like Debtless or insolvency advisors to help you write the proposal. Regardless of whom you use the following points should be remembered:

1. Base it on sensible earnings. Don't guess don't expect large increases in income.
2. Expect that things in the first year will be difficult.
3. Don't promise too much - make sure the repayments are affordable.

IVA Proposal contents

The proposal should include a current description of your debt position, your assets and liabilities. It should also detail what the structure of the IVA deal is and how the creditors are going to be repaid. To help the creditors decide whether to accept the IVA it must contain what is called a statement of affairs. Or, SOFA for short.

A SOFA paints a picture of your personal financial position and demonstrates that you are insolvent. It will also show what would happen if you went into bankruptcy and what the outcome would be if the IVA was approved and successful.

The document will describe how long the deal is for. Typically, most IVA's last between three and five years. And the document will describe how much you will pay in the months and years ahead to your creditors.

After the document has been completed it can be filed at court. The purposes of this are to ensure that the document that is filed at court is the same that is circulated to all creditors and to apply for a moratorium (called an interim order) to protect the debtor in the period between the application to court and the date of the creditors meeting.

The debtor is then protected by the court and no legal actions can continue against him unless the court agrees (which is most unusual).

Once this process has been completed a creditors meeting is called, please see the diagram below for a quicker understanding of the mechanism and the timing.

There are two methods of applying for an interim order to protect the debtor.

The first is to apply or make an application for an interim order prior to the proposal being completed. The second is to use a method called a "concertina" application, this just means that the application for the interim order and a proposal filing happens at same time. This is often the most efficient and cost-effective method.

The interim order: a description.

As described above if the pressure is intense on the debtor it is possible to obtain protection from the court or an "interim order". This protection means that creditors may not petition for your bankruptcy without the permission from the court. All actions by debt collectors, bailiffs or Sheriffs are stayed (which means frozen) until such time as a creditors meeting can be held. For further details and discussion on the legal actions discussed above please see our legal actions guide.

The IVA Process

Creditors meetings and voting

After the proposal has been filed and posted to every known creditor, a creditor's meeting is called. As seen above, there is a statutory minimum period of 14 days before this creditors meeting can be held from the date of the receipt of the document by the creditors. This is to allow adequate time for them to consider the documents contents and to make objections or modifications.

Interestingly there is no rule requiring that the debtor attends the meeting! So you may not have to be there in person. Most creditors meetings have no creditors at all! Most vote by proxy (sending a form to the nominees in advance of the meeting) or they do not bother to vote.

But if a creditor wishes it can attend the creditor's meeting and can question the proposal, the debtor and the chairman, who is typically the nominee, about the contents of the proposal. It is also possible for them to modify the proposal as they see fit. Provided that a majority of 75% of those creditors who voted agree with the modifications these can be adopted into the document and become part of the proposal going forward.

Modifications typically include ensuring that the debtor repays the amount agreed but also pays all future debts on time such as tax. Where a creditor makes a modification that is onerous or would not be in the interest of the debtor or the other creditors it could be rejected by the chairman unless a sufficient majority is in favour of this. Ultimately the debtor can decide not to go ahead with the IVA, but to use bankruptcy. This is rare but is possible.

Voting at creditors meetings
Voting is an area that raises lots of concerns and questions from debtors to us and one which is often confused and confusing. Put simply provided a majority of creditors over three-quarters by value of the creditors supports the proposal as discussed, proposed and modified then the proposal is accepted.

All the debt of the creditors is added up and each creditor has a vote according to the amount of money he or she is due by or from the debtor. Please see the example below:

In the above example 93.33% of the creditors, at the meeting, voted in favour and 6.67% of the creditors, at the meeting, voted against. However, only 69% of the total creditors voted. This vote is sufficient to bind all creditors legally.

"Being bound" means that the creditor may not take legal action to recover the debts due to the creditor: whether they supported the proposal or not. However, and this is important, all future debts must be paid to normal terms.

Supervisors - voting upon. It is possible for the creditors to replace the nominated supervisor with another insolvency practitioner. Again this is rare but does happen on occasion. Therefore typically the nominee will want his fees paid before this creditors meeting!

After the meeting?

After the voting has been concluded the chairman will typically close the meeting by saying that the proposal has been agreed and that all creditors will be circulated with any modifications and a chairman's report. This document is filed at court and the interim order is removed usually within a week or two of the creditors meeting.

The Supervisors role is to act as a person who supervises the deal between the creditors and debtors. Provided the debtor is making a monthly or quarterly or periodic payments as agreed and all information requested by the supervisor is provided then he or she will take no further action. Their job consists of reporting the information to the creditors over the period of the IVA and also making payments in order of priority.

The deal will propose that a certain amount of money is paid into a trust account held by the supervisor over a period of time to be agreed. If for example you agree to pay £5,000 a year for the next five years, £25,000 will be paid in.

At the end of each year, payments will be made to the creditors who have proved their debts to his/her satisfaction. The payments will be the amount the debtor has paid in in that year, less any supervisor's costs.

Advantages of the IVA mechanism

It crystallises the position. This is often one of the most important benefits, a debtor is often reaching the end of his or her tether because they have tried to do deals, they may have raised personal loans to keep on top of debt and are having regular problems keeping up to date with creditors' demands.

It allows focus on your job. Rather than trying to constantly do deals to ensure that creditors don't take action against the debtor, the debtor is entirely focused on earning a living.

It is a quick process and time determined. As above the certainty that a creditors meeting will be held on a certain day three, four or five weeks hence means that the world can start again once this has successfully concluded.

Modest cost. It is impossible to say how much an IVA would cost but usually by stopping paying cards and loans you will be able to make a monthly payment for the costs and the payment to creditors. We can talk you though how that works. An IVA costs around £2,500-3,000 to prepare but most nominees will take payment over time. It is usually determined by the time involved by the advisors be they a turnaround practitioner or insolvency practitioners.

It is discrete. The IVA mechanism is not advertised and, as such, is not public knowledge. Of course your creditors will know because they are circulated a document and have the right to vote upon it. But it does not get any local publicity.

Debt reduction is possible. One single monthly payment repays the creditors the agreed amount over an agreed period of time. This should be based on affordability and the ability of the debtor to repay comfortably.

The debtor keeps his/her home. The debtor carries on paying the mortgage, the mortgage company is made aware of the IVA. Provided the mortgage is met each month they will agree. This can be a massive incentive for the debtor and where a debtor has equity in a home it is probably best to avoid bankruptcy.

In summary the debtor will repay what is affordable in say 5 years. This may be less than all of the debt. See IVA FAQ's for fuller discussion of this.


Disadvantages of the IVA mechanism.

Obtaining future credit is difficult. It has probably been difficult to obtain credit prior to the IVA anyway. But, it is important to understand that future credit for personal means is very difficult to come by, but not impossible.

Fees. Using insolvency and turnaround practitioners costs money. BUT BY STOPPING PAYING ALL OF YOUR LOANS AND CARDS YOU WILL BE ABLE TO MAKE A MONTHLY PAYMENT TOWARDS THE COST AND THE CREDITORS.

There is some publicity. As mentioned in advantages your creditors will know.

It is tough! As mentioned several times in this description it is vital that the debtor is determined to succeed. There will be many pitfalls and difficulties along the way and three to five years, which is the average length of time for an IVA, is a very long time indeed.

Change is essential. We have lost track of the number of debtors (THAT’S YOU) who have committed themselves to an IVA and promised everybody, including themselves and their advisors, that they would change to accommodate the NEEDS of the IVA. YOU MUST SPEND LESS THAN YOU EARN. Many simply return to the age-old ways of not controlling spending and not running their lives SENSIBLY. This will lead to inevitable failure of your IVA and or bankruptcy for you.

If you have any further questions please see our IVA FAQ's.

Please remember - don't bury the problem.

We hope that this guide has been useful for you and that it answers a lot of questions, IVA's are very simple tools in principle but with every case being different we cannot give answers to all questions in this guide. So, please feel free to call us now on 0800 195 6762 or e-mail us at info@Debtless.co.uk to answer your specific personal debt problems, we are happy to help and will not charge for this advice.

Back to top