An Individual Voluntary Arrangement (IVA) is a procedure available to insolvent individuals. It is an agreement between a debtor and his creditors where the individual makes contributions towards repayment of their debts over a number of years. This arrangement may be entered into either before or after a bankruptcy order has been made.
Generally the unsecured debts must be at least £15,000 but this does depend on the individual creditors. There is no maximum or minimum level of repayments, except what is acceptable to creditors.
During the IVA creditors can’t take any action against the debtor – for example, taking him to court or making him bankrupt.
On completion the debt is settled and any remainder is written off. Due to its formal nature, an IVA has to be supervised by a licensed Insolvency Practitioner.
The procedure begins with the debtor drafting a formal proposal to their creditors to pay part or all of the debts. Due to the technical matters involved in drawing up such a proposal, the debtor will almost invariably consult an insolvency practitioner who will become their intended nominee.
The proposal should:
- Explain why the debtor considers that the IVA is desirable
- Give reasons why creditors may be expected to concur with the arrangement
- Provide details of the debtor’s assets and liabilities
The nominee will then make a report to the court or the debtor’s creditors as to whether the proposal is acceptable and viable. If appropriate, the proposal will then be put to a meeting of creditors. If the proposal is accepted at the meeting (75% in value of creditors required), the nominee will then become supervisor of the IVA and oversee its operation. Any agreement reached will apply to all creditors, including any who disagreed to it.
If, once the IVA starts, the debtor doesn’t keep up his monthly payments, the IVA can be cancelled. If this happens creditors can take further action against the debtor, who may be made bankrupt.
A voluntary arrangement with creditors offers flexibility to the debtor. It may include assets not normally available in bankruptcy, for example, the use of third party funds or income from the debtor’s continued trading or employment. It gives the debtor more say in how his assets are dealt with, for instance, creditors may allow the debtor to exclude and retain certain assets such as his home. In addition, the restrictions which apply to a bankrupt are avoided.
Repayments under an IVA may last for any length of time, but 5 years or longer is common. By way of comparison, an individual who has been declared bankrupt generally has his debts discharged after 1 year, when he receives his discharge from bankruptcy. If the IVA fails, it is likely that the debtor will go bankrupt. The debtor’s credit rating can be affected for up to 6 years when they enter an IVA and they may be required to re-mortgage their home during the course of the arrangement.
An IVA will be added to the Individual Insolvency Register. It’s removed 3 months after the IVA ends.
If you have questions, contact our insolvency practitioners in London!