IVA's

Is an Individual Voluntary Arrangement right for your clients?

• Your client’s debts must exceed £20,000 and must be a private individual (not a company).  
• You must have a surplus income of more than £250 per calendar month.  
• They can be a home owner or a tenant.  
• They must live in England, Wales or Northern Ireland.  
• They must owe money to two or more creditors.
• If your client doesn’t quite fit these requirements we may be able to help using alternative solutions.

Individual Voluntary Arrangement (IVA)

• An Individual Voluntary Arrangement (IVA) can cancel up to 90% of your client’s debt legally so that your client never has to repay the outstanding sums in full.
• An Individual Voluntary Arrangement is a legal agreement drawn between the person in debt, all creditors to whom money is owed (ie credit cards etc) and a Licensed Insolvency Practitioner.  It is a legal process by which your client’s unsecured creditors cannot pursue your client for payment of his/her debts outside of the agreement.
• In a voluntary contributions based IVA your client agrees to pay a single reduced, affordable, monthly payment for a period between 3 and 5 years after which the unpaid part of the debt is written off by your client’s creditors.  The creditors are aware of this and are in agreement with it.

It sounds too good to be true

• During the repayment period all interest charges are frozen and demands for money are stopped.  Your client’s creditors are not allowed to contact them directly.
• Each creditor gets a share of your client’s monthly payment, usually in year 3 and year 5 of the Individual Voluntary Arrangement (IVA), so no payments are made to individual creditors on an ongoing basis.
• The Individual Voluntary Arrangement (IVA) is drawn up and subsequently administered by a Licensed Insolvency Practitioner.

But it is true

• This may sound too good to be true but it is the law and creditors like it.   Creditors are usually willing to accept an Individual Voluntary Arrangement (IVA) because it stops them spending more money chasing debts that can never be repaid.  It is also in their interest to accept a reduced payment because they recover some money but also derive tax benefits by doing so.  An IVA takes about 6-8 weeks to set up.

Voluntary Contributions and Lump Sum IVAs

Voluntary Contributions based IVAs:

Where your client owns their own property and there is equity in it, if an IVA is to be proposed to your client’s creditors then your client may have to make voluntary contributions and release a lump sum (by way of re-mortgage or sale) against their property prior to the IVA being successfully concluded.
We can advise your clients whether this is appropriate and right for them.
Much will depend on your client’s debt levels, their surplus income and the level of equity in their property.

Lump Sum IVAs:

In addition to a voluntary contributions based IVA we can also assist clients in proposing lump sum IVA’s. This may be possible where a member of your clients family can make funds available or where money can be raised against your clients house.   Creditors are normally very receptive to lump sum IVAs as it enables them to receive partial payment against the outstanding debt fairly quickly and without having to wait 5 years.   The unpaid part of the debt will get written off.

Your client’s role in producing an Individual Voluntary Arrangement:

• Your client will need to provide us with information and documentation on their household income and expenditure.   Any assets that they own including their house, cars, policies etc.  
• Your client will also need to supply us with a full list of all your client’s creditors including store cards, loans, catalogue debts, unpaid utility bills etc.
• You will not need to contact your client’s creditors directly.
• Once your client’s individual voluntary arrangement is agreed your client will need to make the agreed monthly payments for the duration of the arrangement.

Moneysolve can arrange an IVA for your clients that could write off 90% of debt and leave your clients debt-free.

The clients creditors’ role in the Individual Voluntary Arrangement process:

Your client’s creditors must decide whether to …

• accept your client’s proposal
• reject your client’s proposal
• accept your client’s proposal subject to conditions.
• Once the proposal is accepted they must freeze all interest payments and stop demanding money from your client directly.   Your client can look forward to a debt-free and bright future.

Advantages of IVAs

• Your client will not lose control of their assets as they would in a bankruptcy.
• If your client is a director of a limited company or self-employed it is easier for them to remain in business.   In other words your client would not automatically be disqualified from acting as a director and similarly their business partnership would not automatically be terminated.  Statutory restrictions on obtaining credit would not apply,   There is less stigma in IVAs than in bankruptcy.
• IVAs are not advertised in local newspapers.
• There is quite a lot of flexibility in the preparation of proposal documents and in particular what assets can be offered to creditors.   Some assets can be excluded.
• As long as over 75% of the creditors voting at your client’s creditors’ meeting vote in favour of the proposal than all of your client’s creditors will be bound by its outcome.  This avoids the necessity of securing every creditor’s specific agreement (as would be required in a debt management programme).
• If approved the IVA gives your client security and comfort in knowing that once your client has fulfilled his/her obligations under the arrangement it will effectively bring the IVA to an end and the creditors will not be able to pursue your client for any unpaid balances guaranteed.

Disadvantages of IVAs

• The IVA may impose more onerous obligations over a longer period than bankruptcy.
• Creditors may suggest modifications which may alter the original scope of the proposal for example require higher repayments over a longer period, assets included in the individual voluntary arrangement are held by the Supervisor on trust for the benefit of your creditors.
• If your client’s IVA is approved and your client subsequently fails to comply with what is required of them in accordance with the terms of the proposal for example if your client fails to make the monthly repayments into their proposal without prior arrangement the Supervisor of the arrangement may be forced by creditors to issue a bankruptcy petition against you.
• There are restrictions in obtaining credit whilst your client is in an IVA.
• Your client will only be released from their voluntary arrangement when they have complied with all the conditions of their IVA and their creditors have been notified.
• If your client is required to re-mortgage your house at the end of the arrangement your client would be left with a higher mortgage but this will be affordable as no further monthly contributions will be required at that stage.