Dealing with overwhelming debt can be a distressing experience, leaving individuals feeling trapped and unsure of how to regain control of their finances. In such situations, an Individual Voluntary Arrangement (IVA) can provide a lifeline, offering a structured and legally binding agreement between debtors and their creditors. This article aims to shed light on the basics of iva, providing a comprehensive understanding of this debt management solution.
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a formal arrangement made between an individual (the debtor) and their creditors to manage and repay debts over a specified period, usually five to six years. It is a legally binding agreement overseen by a licensed insolvency practitioner (IP) who acts as a supervisor throughout the process.
Eligibility for an IVA
Not everyone is eligible for an IVA, and the criteria can vary based on the debtor’s circumstances. Generally, individuals with unsecured debts of around £6,000 or more, owed to two or more creditors, may be considered for an IVA. It is essential to seek advice from a licensed insolvency practitioner to determine eligibility and suitability for this debt solution.
Advantages of an IVA
Affordable Repayments: IVA payments are based on the individual’s affordability, taking into account their income, essential expenses, and the number of creditors.
Legal Protection: Once approved, creditors bound by the IVA are unable to take legal action against the debtor or add further interest and charges to the debts included in the arrangement.
Single Monthly Payment: Instead of juggling multiple debt payments, the debtor makes a single affordable monthly payment to the insolvency practitioner, who then distributes it among creditors.
Debt Write-Off: At the end of the IVA term, any remaining debts included in the arrangement are typically written off, offering the debtor a fresh start.
Avoiding Bankruptcy: An IVA is often a preferable alternative to bankruptcy, as it allows the individual to avoid the severe implications of bankruptcy on their credit score and professional standing.
The IVA Process
Seeking Professional Advice: The first step is to seek advice from a licensed insolvency practitioner. They will assess the individual’s financial situation, discuss available options, and determine whether an IVA is the best course of action.
Drafting the Proposal: If an IVA is deemed suitable, the IP works with the debtor to create a detailed proposal outlining their financial situation, income, expenses, and the proposed repayment plan. Creditors then review and vote on the proposal.
Creditor Approval: For an IVA to proceed, creditors representing at least 75% of the total debt value must vote in favor of the proposal. Once approved, the IVA becomes legally binding on all parties involved.
Managing the IVA: The debtor makes regular monthly payments to the insolvency practitioner, who handles the distribution among creditors. Throughout the IVA, the debtor must adhere to the terms and make payments as agreed.
Completion and Debt Write-Off: At the end of the agreed-upon term, assuming all payments have been made as required, any remaining debts included in the IVA are typically written off, allowing the debtor to start afresh.
Considerations before Entering an IVA
While an IVA offers many benefits, it is essential to carefully consider the implications and potential drawbacks before proceeding:
Impact on Credit Score: An IVA will have a negative impact on the debtor’s credit score, making it challenging to obtain credit during the arrangement and for some time afterward.
Disclosure of Financial Information: The debtor’s financial details become part of a public record, accessible by anyone through the Insolvency Service’s website.
Risk of Failure: Failure to comply with the terms of the IVA can lead to bankruptcy, with potential consequences for the debtor’s assets and financial future.
In Conclusion
An Individual Voluntary Arrangement can be a viable debt management solution for individuals struggling with unmanageable debts. It offers a structured and affordable way to repay creditors while providing legal protection and potential debt write-off at the end of the term. However, it is crucial to seek advice from a licensed insolvency practitioner and carefully weigh the pros and cons before committing to an IVA. By doing so, individuals can make an informed decision about the most appropriate path towards financial recovery and stability.
