If you are suffering from significant debt problems then you 個人自願安排 may be considering applying for an Individual Voluntary Arrangement (IVA). An IVA is one of the most popular forms of debt relief available to UK individuals. They aren’t however suitable for everyone and so before you apply you should consider a number of things.
Individual Voluntary Arrangements are a government back debt solution that will consolidate your debts and leave you debt free after a fixed period of time, usually after five years. Unlike bankruptcy the IVA is a completely private agreement between you and your creditors. It is a legal arrangement that replaces all your existing unsecured credit repayments with a single regular monthly payment to be shared out between your creditors. Nearly fifty thousand people used an individual voluntary arrangement to get their debts restructured and payments lowered last year.
To qualify for an IVA you must meet certain qualifying criteria. IVAs are intended to help people with significant debts of at least £15000. Generally it is preferable for this debt to be divided between three or more creditors. You should also have a regular income that will enable you to meet the payments.
To apply for an IVA you should first talk to a professional financial advisor who will advise you whether or not it is the best solution to your financial problems. If an individual voluntary arrangement is right for you then there are many companies in the UK who can arrange your IVA. Individual voluntary arrangements can only be prepared and managed by licensed Insolvency Practitioners (IP). It is the IP who will draft a formal proposal for you and your creditors. Providing at least 75% of your creditors agree to the proposal the IVA will be confirmed and all creditors will be automatically bound by its terms.
An IVA is a modern alternative to bankruptcy. Although IVA’s first became available in 1986 via the Insolvency Act, they have only gained notoriety in the public domain in recent years. An IVA is a legally binding contract between a debtor and their creditors. An IVA typically lasts for 5 years, at the end of this term the debtor will be debt free. During this term, fixed monthly repayments, that reflect the debtor’s available disposable income, will be made. An IVA is particularly suited to debtors who have financial support from relatives and/or have a reliable and regular income. An IVA will be supervised by a debt management company.
How is an IVA arranged?
Firstly, a debtor must secure the help of one of the many debt management companies. Under their guidance, a debtor will make an IVA proposal. This proposal will be presented in court and will include details of a debtor’s financial situation; and a realistic repayment plan. Following this, all creditors must be sent a copy of this IVA proposal as well as advance notice of an IVA proposal meeting. At this meeting the creditors will vote as to whether the debtor in question should gain an IVA. The debtor’s IVA proposal must be accepted by at least 75% of creditors present (in person or by proxy) to allow the IVA to go ahead. If the IVA proposal is accepted, any creditors (present or not) who received formal notice of the IVA proposal meeting are bound by the terms and conditions of the IVA contract. Any creditor who did not receive notice of the IVA meeting will be exempt from this contract, thus, it is important to have well kept records of all creditors.
There is no official amount of debt that is required to have an IVA approved. It simply depends on whether a debtor’s combined creditors agree that an IVA is appropriate. The cost of an IVA will depend on a variety of factors. These include the term of the agreement, the outstanding debt, a debtor’s disposable income and the administration costs (including the collecting of information for the proposal and creditors meeting).
While bound to an IVA if a debtor’s circumstances change they may request that their creditors attend a variation meeting, which may in turn lead to an amended proposal.
Benefits of an IVA
Until the introduction of IVA’s, bankruptcy was the harsh reality for consumers who lost control of their debts. Bankruptcy is a costly and public affair. A debtor will loose all control over their assets and their credit rating will suffer further damage. In contrast, as a solution to the problem of debt, an IVA offers many benefits:
- Costs are lower.
- A debtor’s disposable income will be taken into account when repayments are set. Thus, it is typical that the overall debt repayment is reduced. Provided the conditions of the IVA have been adhered to any outstanding debt will be written off at the end of the IVA term.
- From the date of arrangement all interest and charges on debt are frozen.
- Fewer restrictions apply than with bankruptcy. For example, a debtor with an IVA will not incur the risk of having their business terminated.
- With an IVA a debtor will maintain some say in the control of their assets. A debtor must make their best repayment offer to the creditors. Providing an asset is not considered surplus to needs, a debtor will not be required to sell it. A debtor will not be required to sell their home, but will be expected to re-mortgage it to release equity that can be used to fund repayments. It is also possible to exclude some other assets from being repossessed, such as life assurance or a motor car.
- Even if a debtor has been declared bankrupt an IVA may still be an option. However, it is worth noting that ideally a debtor should secure and IVA before bankruptcy is decaled, to avoid the excess costs.
- Unlike with bankruptcy an IVA is not published in the local press, nor is a debtor required to inform an employer. However all IVA’s are listed with the department of trade and industry, which is available for public inspection, when requested. An IVA will also be listed on a debtor’s credit file.
- Successful completion of an IVA will result in a certificate of compliance and will improve a debtor’s credit rating.
- Creditors can bring no further charges against the debtor. For example no bankrupting proceedings or count court judgements.
Complications of an IVA
Secured debts can not be catered for by an IVA. However, repayments required on a secured loan can be taken into account when an IVA proposal is made. This means that the repayment amount for the IVA may be lower to allow the debtor to keep up repayments on any secured loans. It is worth noting that as with bankruptcy, fines and arrears on Child Support Agency payments are also excluded from the IVA.
It is important to adhere to the terms and conditions of an IVA, failure to do so may result in a creditor petitioning for bankruptcy and/or the collapse of the IVA. A debtor needs to ensure they declare all debts and assets and keep up repayments. In certain circumstances if a one-off repayment cannot be made it may be possible to agree this as acceptable with the IVA supervisor and continue with the IVA.
With the exception of basic utility credit, credit will not be approved while a debtor has an IVA.
In the case of joint debt, both parties are liable for the whole of the debt. If one party secures an IVA, there is nothing to prevent creditors from claiming the debt from the other party. In the case that one party gains approval of an IVA, the options for the other party will depend on the amount of debt (including joint debt) they have.
If the partner’s debt is less than £10,000, an IVA will not be financially viable. The cost of setting up such an agreement would be disproportionate to the debt. In this case the non IVA partner will need to make provisions to ensure that their existing non IVA debt repayments can be maintained. This may be quite a challenge as the IVA partner will simultaneously need to make their repayments according to their IVA. For this reason, the non IVA partner may opt to secure a debt management plan to reduce debt payments.
In the case that the partner has a large amount of debt, exceeding £10,000, jointly the partners can make a proposal for a linked IVA. The cost of running a linked IVA is typically 50 % higher than an individual agreement.
Modern day society is often characterised by high financial demands on typically low salaries. A consumer can easily find themselves becoming overwhelmed by debt. In most case an IVA with its many benefits is a welcome solution to the problem of debt.