Individual Voluntary Arrangements (IVAs)

Introduction to IVAs

An Individual Voluntary Arrangement (IVA) is a formal agreement between an individual and their creditors to repay debts over a specified period, usually lasting between three to five years. This legally binding arrangement allows individuals facing financial difficulties to manage their debts more effectively while avoiding bankruptcy. IVAs provide an opportunity for individuals to make affordable monthly payments and ultimately have their remaining debts written off after completing the agreed term.

When is an IVA Necessary?

An IVA may be considered necessary under the following circumstances:

• Overwhelming Debt: Individuals who are struggling to manage multiple debts and find themselves unable to meet their monthly obligations may benefit from an IVA.
• Creditor Pressure: If creditors are threatening legal action, an IVA can help to stop these proceedings and provide a structured repayment plan.
• Desire to Avoid Bankruptcy: For those wishing to avoid the stigma and repercussions of bankruptcy, an IVA offers a more favorable alternative.

The IVA Process Explained

The IVA process generally follows these key steps:

1. Initial Consultation:
   Individuals seeking an IVA typically begin with a consultation with a licensed insolvency practitioner. This step involves assessing their financial situation and determining if an IVA is a suitable option.
2. Proposal Development:
   The insolvency practitioner prepares a detailed proposal outlining the individual’s financial circumstances, proposed repayments, and how the IVA will benefit both the individual and their creditors.
3. Creditor Meeting:
   Once the proposal is prepared, a meeting is held with creditors. A minimum of 75% (by value of the debt) must agree to the proposal for it to be approved. If accepted, the IVA becomes legally binding.
4. Monthly Payments:
   The individual makes regular monthly payments as agreed upon in the IVA proposal. These payments are distributed among the creditors by the insolvency practitioner.
5. Completion and Debt Discharge:
   Upon successful completion of the IVA term, any remaining unsecured debts are typically written off, providing a fresh start for the individual.

Advantages of an IVA

1. Debt Management:
   An IVA allows individuals to manage their debts through a structured repayment plan, often at a reduced amount.
2. Legal Protection from Creditors:
   Once an IVA is in place, creditors are legally prohibited from taking further action to recover debts.
3. Retention of Assets:
   Unlike bankruptcy, where assets may be sold, individuals may retain their assets, including their home, provided they keep up with their IVA payments.
4. Fresh Start:
   Completing an IVA gives individuals a chance to rebuild their financial lives without the burden of unmanageable debt.

Disadvantages of an IVA

1. Impact on Credit Rating:
   An IVA will negatively affect an individual’s credit rating and remain on their credit file for six years from the date of approval.
2. Costs Involved:
   There are fees associated with setting up and administering an IVA, which can add to the financial burden if not properly managed.
3. Limited Access to Credit:
   Individuals with an IVA may find it challenging to obtain credit during and after the arrangement.
4. Commitment to Payments:
   An IVA requires a commitment to make monthly payments, which may strain the individual’s budget.