According to statistics produced by the Insolvency Service, they recorded 26,072 personal insolvencies in the 3rd quarter of 2007, of which 10,239 were IVAs. Out of 82,279 personal insolvencies recorded so far this year, 33,535 of these have been IVAs, representing 40% of the total.
It is clear from the figures above that many individuals feel that the Individual Voluntary Arrangement, or IVA, is their light at the end of the tunnel. Indeed, the IVA is both a flexible and effective method of dealing with debt which offers debtors the protection they need from further legal action in respect of their debts, flexibility with regard to what assets are used to satisfy their debts, and none of the restrictions associated with bankruptcy. Creditors also benefit from a higher return than can usually be expected in the case of bankruptcy.
However, if an IVA is your light at the end of the tunnel, you should not forget that it is a legally binding contract between you, your creditors and the Supervisor of the arrangement. Once agreed at a meeting of creditors, you must adhere to the terms of your proposal as failure to do so could lead to bankruptcy.
With the above in mind, what are the advantages and disadvantages of entering into an IVA?
IVA Advantages
a Debt Free - An IVA lasts for a fixed period of time, normally no longer than 5 years, at the and of which you could be debt free.
a Payment Demands Stopped - Once the IVA is agreed, your creditors are bound by the agreement and by law they are unable to demand payments from you either by telephone or letter.
a Interest and Charges Frozen - Upon approval of the IVA, creditors cannot add any further charges or interest to your accounts covered by the agreement by law.
a Single Monthly Payment - At the beginning of the arrangement, you agree an affordable monthly payment with your creditors. In some cases, proposals may even be based on payment of a one-off lump sum.
a Repaired Credit Rating - Once you have successfully completed your arrangement, you are issued with a Certificate of Completion. This will have a beneficial effect on your credit rating.
a Fixed, Legally Binding Agreement - The IVA is legally binding on you and all your creditors. You will know exactly where you stand and how long it will take before you are debt free.
a Protection from legal action - Once approved, creditors bound by an IVA are not allowed to take any further legal action against you as long as you meet the terms of the arrangement.
a A Private Agreement - An IVA is a private matter between yourself and your creditors so, unlike bankruptcy, there will not be public notice in the local papers.
a Professional Status Unaffected - You can continue in your current profession (e.g. doctor, solicitor or accountant with the consent of your professional body) whilst undertaking an IVA without any adverse impact to your job.
aAbility to hold public office unaffected - An Individual Voluntary Arrangement does not affect your ability to hold public office.
a Lower fees - IVA fees tend to be less in comparison to the court costs and Official Receiver fees involved in a bankruptcy.
a A Flexible solution - if your circumstances change during the course of the arrangement, its terms can be modified to take these into account, with the approval of your creditors.
IVA Features
r Possible Release of Equity in your Home - If there is any equity in your property or any other significantly valuable asset, you may be required to release some of this as part of the IVA agreement, although you are usually allowed to keep approximately 15% of your share.
r Minimum Level of Debt - An IVA is usually only suitable for people with a minimum level of unsecured debt around £15,000 or more. Additionally, you will usually need to be able to afford a monthly payment of at least £200.
r No Unsecured Borrowing while the Arrangement is in place - You will not be able to obtain and use store or credit cards. Any cards you have at the time the IVA is approved must be cut up and returned to the financial institution which issued them. However, it may be possible to change an existing mortgage or apply for a new one while you are in an IVA. Your IP can advise you on this.
r Monthly Payments must be affordable - IVAs are only suitable if you can afford the monthly income contributions to your creditors.
r Creditors must agree - Your creditors have to agree on the arrangement through a vote, and 75% by value of those voting have to agree.
r You must maintain your monthly payments - If you do not make your regular payments to the IVA it is likely that the arrangement will fail and your creditors will be at liberty to take all the usual debt recovery actions against you. Often the supervisor is required by the creditors to petition for the bankruptcy of the debtor on the failure of an IVA.
If you want to know more, why not contact The Debt Helpline free on 0800 88 18 274.
