Individual Voluntary Arrangements (IVA's)

Although they have been around since 1986, IVA's have recently increased significantly in number for individuals as well as small businesses as an action against debt, largely thanks to considerable media coverage and television advertising. Yet, IVA's remain one of the most misunderstood approaches to debt management. Here we consider the top ten things you need to know about IVA's.
  1. IVA's are not a quick, easy and inconsequential route out of debt, despite some of the misleading advertising. In reality, IVA's are the 'next worst thing' to bankruptcy, complete with the emotional and financial baggage that goes with the label.
  2. IVA companies stand to make a considerable amount of money from each individual that they 'support' through the IVA process, which is why there are now so many companies working in the industry, particularly as global financial issues continue.
  3. Each Individual Voluntary Arrangement takes the form of a legal contract between debtor and creditor (for example an individual and a credit card company). The IVA effectively freezes the debt: the creditor waives any further interest whilst the debtor agrees to a proposal of repayment on the debt for a fixed period of time, for example agrees to pay £150 a month for the next 5 years, then after this time and the regular payments, the rest of the debt is waived. Remember though, that these repayments form part of a legal contract, which the debtor must fulfil faultlessly.
  4. The benefit of IVA instead of bankruptcy is that assets such as a house or car are not affected, although the equity held in a property may be called into consideration, possibly to the point of requiring a debtor to remortgage and release a share of the equity to the creditors.
  5. Anyone thinking of undertaking an IVA to eliminate a debt should take independent advice, not walk straight into an IVA company to ask for assistance. Independent advice can be sought from the Citizen’s Advice Bureau, The Consumer Credit Counselling Service and the National Debtline: all of whom will be able to advise knowledgably about IVA's, but without hidden agenda or marketing, which cannot be said when seeking advice direct from an IVA company.
  6. There are a limited range and type of debts that can be brought into an IVA. A mortgage or loans secured on property cannot be included in an IVA, whilst overdrafts, store and credit cards, personal loans and catalogue debts may well be included.
  7. Because there is a significant legal side to IVA, it is not possible to negotiate one without the assistance of an Insolvency Practitioner (IP) or solicitor. This is also necessary because once the IVA’s in place this practitioner is required to oversee it.
  8. The process of initiating an IVA requires the IP to request an 'Interim Order' from the local county court. This means that creditors cannot begin bankruptcy proceedings or legal action against the debtor without first referring to the court.
  9. All creditors involved in the debt in the IVA must vote for the IVA to be put in place or not. 75% of the creditors (by value) need to agree to the IVA proposal, so it could fail if the main creditor does not vote for it.
  10. An IVA is usually in place for 5 years, or 60months, overseen by the IP and commands an average payment figure of £200 per month. Costs in payment to an IVA company can be around £7,500, so it should not be considered as a 'solution' to a small debt.