An Individual Voluntary Arrangement (IVA) is a formal legal agreement between an individual struggling with unmanageable debt and their creditors. It is a debt solution available in the United Kingdom and is designed to help individuals avoid bankruptcy. They do this by coming to an agreement on how to repay their debts over a specified period of time. Here are the key points about IVAs.
Eligibility
To be eligible for an IVA, you generally need to have a certain level of debt and a regular income. IVAs are typically suitable for individuals who owe at least £6,000 to multiple creditors, And have a consistent income to make regular repayments.
Proposal
To set up an IVA, you work with a licensed insolvency practitioner (IP). He or she assists you in creating a formal proposal. This proposal outlines how you intend to repay your debts. It includes details such as the proposed repayment amount. Additionally, it includes the duration of the IVA (usually five or six years), and how the IP will distribute payments to your creditors.
Creditor Approval
Once the practitioner drafts the proposal, your insolvency practitioner presents it to your creditors. Creditors then vote on whether to accept or reject the proposal. For the IVA to meet approval status, creditors representing at least 75% of the total debt must vote in favour.
Binding Agreement
If they approve the proposal, the IVA becomes a legally binding agreement, This applies to both you and your creditors. This means that as long as you stick to the agreed-upon terms and make the agreed payments, creditors cannot take legal action against you or add interest to your debts.
Individual Voluntary Arrangement – Monthly Payments
Throughout the IVA period, you make regular monthly payments to the insolvency practitioner, They then distribute the funds among your creditors according to the agreed terms.
Debt Write-Off
At the end of the IVA period, any remaining debt covered by the agreement is typically written off, allowing you to achieve a fresh financial start. This is one of the key benefits of an IVA compared to bankruptcy.
Individual Voluntary Arrangement – Implications
While IVAs offer debt relief, they also have implications. They will appear on your credit record for six years from the date of approval, affecting your ability to access credit during that time. It’s also important to comply with the terms of the IVA to avoid it failing and potentially facing bankruptcy.
Professional Fees
There are fees associated with setting up and managing an IVA. These fees are typically deducted from the payments you make into the arrangement.
Conclusion
IVAs are complex legal arrangements, and it’s crucial to work with a licensed insolvency practitioner who can guide you through the process and help you determine if it’s the right solution for your financial situation. Keep in mind that financial regulations and procedures can change, so it’s advisable to seek up-to-date advice from reputable sources or professionals in the field before making any decisions.
