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Individual Voluntary Arrangements (IVAs) are now highly standardised and usually last for 5 years. The normal basis of an IVA proposal is a monthly contribution from income for the duration of the Arrangement. In essence, an IVA is a contractual arrangement with creditors.
The key to a successful IVA is a stable income so that you are able to maintain your contributions over the 5 year period of the Arrangement.
An IVA can only be offered to your creditors by a licensed insolvency practitioner who acts as your Nominee when helping you formulate your proposals. When the IVA is approved by your creditors the insolvency practitioner then acts as Supervisor of the Arrangement and oversees the administration of it.
Getting your IVA put in place
Our Liverpool-based Licensed Insolvency Practitioner contacts will guide you through the process, assist you in formulating your proposals to creditors and oversee a successful implementation of your Voluntary Arrangement. A good insolvency practitioner (IP) will work hard on your behalf to draw up your IVA proposals and ensure they are attractive to creditors. Whilst working with you to draw up the proposals the IP is known as a Nominee. A good Nominee should strive hard to secure the agreement of creditors so that your Arrangement can be put in place.
For an IVA to be approved, 75% in value of those creditors voting must vote in favour of it. It must be emphasised that it is not compulsory for creditors to vote but even if they do not vote they are bound by it if it is approved. Once the Arrangement is approved the IP becomes the Supervisor of your IVA.
Property within an IVA
If you own a property, it is usually required to be revalued during the course of the IVA (often in the 4th year) and a remortgage of 85% of the value of the property is usually required to release any equity for the benefit of your creditors. In some circumstances an IVA may have to be extended by another year to 6 years so that creditors benefit from an additional year of contributions from income in lieu of any equity in your property. Make sure that your licensed insolvency practitioner explains this aspect to you if you own your own home.
Protection from creditors in an IVA
Unlike a debt management plan, an IVA is legally binding and so long as the terms are complied with, you are safe from any creditor bound by the Arrangement taking any further recovery action against you or your assets.
Individual Voluntary Arrangements as an alternative to bankruptcy
IVAs are by and large seen as an alternative to bankruptcy yet they remain a formal procedure and are registered at your nearest local County Court that deals with bankruptcies and IVAs. In Merseyside that will be either Liverpool or Birkenhead .
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If you are a sole trader with a profitable business, an IVA may have the advantage of allowing you to continue to trade and make your monthly contribution from future profits. Not only does the ability to trade allow you to maintain your livelihood but you are perhaps preserving the livelihoods of employees as well.
You cannot act as a director of a limited company whilst bankrupt. An IVA offers you the chance to resolve your personal debt problems whilst carrying on in your role as director of your company.
If you are a company director of a failed company and have been asked to repay company loans under personal guarantees, you could enter into an IVA to repay the monies due under the guarantees.
Certain professional bodies do not permit their members to continue their professional membership if made bankrupt. An Individual Voluntary Arrangement affords you as a professional a resolution to your debt problems whilst protecting your professional status.
People are often motivated to enter into an Individual Voluntary Arrangement because they have a house and are frightened they will lose it in bankruptcy. In an IVA your property is NOT ignored and creditors will expect to see equity (should there be any) released in the latter part of your Arrangement as detailed above. In many cases it will be possible to negotiate a better deal for your beneficial interest in your home with a Trustee in bankruptcy than in an IVA.
Whilst there isn't really a stigma associated with bankruptcy anymore, many people are drawn to IVAs because they're concerned that their personal reputation is in some way tarnished if they go bankrupt.
Again, it is essential to take independent professional advice before making any decision as to your best course of action. An analysis of the advantages and possible pitfalls of an Individual Voluntary Arrangement is essential.
The evolution of IVAs
Let's dispel a myth- Despite what you continue to see in television and newspaper adverts, Individual Voluntary Arrangements have not been introduced as part of “recent government legislation”. They've been in operation for a long time now having been introduced way back in 1986 under the provisions of the Insolvency Act 1986. The main rationale behind their introduction was to serve as an alternative to bankruptcy for insolvent individuals. At the same time a similar arrangement was introduced for companies which is called a CVA- Company Voluntary Arrangement.
IVAs were introduced primarily to serve the needs of sole traders who ran into financial difficulties but who may have had a profitable underlying business and wished to carry on trading. Contributions from future income would form the basis of the IVA proposal and frequently would provide for a more orderly and less expensive disposal of assets within the Individual Voluntary Arrangement than would otherwise be the case in bankruptcy. The advantages for creditors would be a greater dividend return than they would get in bankruptcy and the advantage for the debtor would be the avoidance of bankruptcy and being able to continue to trade. Unlike today, IVAs would usually last only 3 years and sometimes less time than that.
What happens at the end of the IVA?
Assuming you have complied with the terms of the IVA- you have made all your monthly contributions and dealt with any equity in your home - you will be debt-free. Whatever is left outstanding to your creditors after the insolvency practitioner has made payments to them is written off.
If you think an IVA might be right for you please call our Liverpool office now.
Photo by Ken Teegardin