IVA (Individual Voluntary Agreement)

What is an IVA? An IVA is a legal arrangement which allows a debtor to reach an agreed compromise with creditors, allowing the debtor to repay debts without further interest, using an affordable sum. An IVA allows the creditors to recoup some of the debt without the legal costs of starting bankruptcy proceedings. How does an IVA work? An Individual Voluntary Agreement works by setting up a new agreement between a person with debts over £15,000 and their creditors. All the debtor’s monthly debt repayments are replaced with one new repayment. The new payment is based on affordability. Once the IVA has been agreed at the creditors' meeting (at least 75% of the creditors must agree ), the IVA becomes legally binding on everybody named in the agreement. An IVA works on a fixed 5 year repayment time period. This means that you will not necessarily be able to repay your full debt within this time period, therefore any money that has not been repaid by the time the IVA reaches the end of the fixed 5 year time period will be legally written off by your creditors.

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What are the advantages of an Individual Voluntary Agreement?

• The monthly repayments are set at an affordable level so you can continue with your life without the burden of your debts.
• Fixed Term Agreement - the agreement is for a fixed period of no more than 5 years.
• Security - your home is not at risk to the creditors.
• Interest and other charges are automatically frozen, so your debt won`t grow.
• You can still run a bank account, as long as you don’t have an overdraft facility.
• You retain your privacy – and your dignity. An IVA is a private matter between you and those you owe money to. There is no requirement to advertise IVAs in the local press.
• You will escape being credit blacklisted. However you do need to be aware that your credit rating will be affected for 6 years.
• Your employment will probably not be affected. In fact, your employers will not know about your IVA unless you choose to tell them.
• The costs of an IVA are lower than bankruptcy.
• You can continue to be a company director with an IVA. In bankruptcy you cannot.
• With an IVA, your creditors can not contact you.

What are the disadvantages of an Individual Voluntary Agreement?

• Monthly IVA payments can often be increased if the debtor earns more but are far less likely to be reduced. An IVA repayment is set at a “reasonably affordable” level at the outset, so the agreements are often “failed” if the debtor cannot meet the IVA repayments due to significant changes in circumstances.
• Debtors in an IVA will have to submit a financial statement, payslips and P60 every year for review. This is a condition of the IVA and can lead to failure if the debtor does not comply. If the debtor’s financial situation is shown to have improved, they may be required to increase their contributions based on the increase in disposable income.
• Once the IVA Company starts the Individual Voluntary Arrangement (IVA) the debtor is not permitted to obtain any credit without the approval of their Supervisor. If the debtor does acquire unapproved credit, it is considered a severe breach of the Individual Voluntary Arrangement (IVA) and the IVA can be failed through the insolvency practitioner.
• If the defaulter has taken an Individual Voluntary Arrangement and subsequently achieves a sudden windfall, such as a win on the lottery, they will be expected to enter a portion, if not all, of these funds into the IVA to the benefit of their creditors.
• If your total creditor debt is less than £15,000, you will not qualify for an IVA.
• You will be expected to pay as much as you can, so you`ll have very little spare money each month.
• An IVA lasts 5 years - longer than a typical bankruptcy (bankruptcies are often over within a year, although you may be required to make contributions for three years).