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1.The advantages of an IVA

An IVA is only one of a number of options that should be considered when looking to address financial difficulty. Other issues
that need to be considered include;

1. Simple economies such as reducing expenditure and securing additional sources of income.
2. Debt consolidation or remortgaging.
3. Debt management.
4. IVA
5. Bankruptcy

As a general rule an IVA should not be the first of these options to choose because there will be long term consequences for those who enter in to one. In order to make a good decision each of the options needs to be understood and considered, and
an insolvency practitioner will help you to do this.

At the end of the day there’s no right or wrong decision, its really what feels right for you, provided that you’ve understood the choices but if you do chose an IVA these are some of the reasons that might influence you;

1. You genuinely want to pay your creditors back as much as possible but in a timescale that makes sense to both you and them.
2. You don’t want to be made bankrupt with the publicity that goes with it.
3. You can’t agree an informal repayment plan with your creditors because not all of them will cooperate,
4. You are concerned that your debt position will lead to legal proceedings being brought against you.
5. A debt management plan will take too long.
6. You would prefer the discipline of an IVA compared to the informality of a debt management plan.
7. Bankruptcy would have implications for you that have to be avoided if at all possible.
8. You can deal with your creditors with a single monthly repayment.

2.The IVA Process

IVA’s were introduced by the Insolvency Act 1986 which sets out the rules and procedures to be followed.

The act says very little about what an offer to creditors should include. That is largely left to the debtor to decide and the creditors can then vote as to whether the offer is acceptable. One overriding requirement is, however, that the offer should
exceed the amount that the creditors could expect to receive if the debtor was made bankrupt.

The offer to creditors is sent in a document known as the proposal. This sets out the financial circumstances of the debtor and explains the reasons why an IVA should be considered. It will also contain a calculation showing the return that creditors
can expect from the IVA, after costs, and will make a comparison with the return that could be expected in a bankruptcy.

At the time that the proposal is sent to creditors a notice is also sent to them to convene a meeting of creditors. This is usually held at the offices of the insolvency practitioner but, in practice, creditors do not attend preferring to send their vote in by post.
In order for the proposal to be approved 75% of creditors who vote must agree to the proposal. This is quite different from 75% of all creditors and is relevant because a number of high street lenders have a policy of never voting.

If at least 75% of voting creditors approve the proposals the IVA becomes effective and its terms are binding on all creditors,
regardless of how they voted.

At the point where creditors vote they are also given the option of voting in favour of the proposal but only if the debtor agrees to specified changes to the proposal, known as modifications. If the debtor agrees to the changes the vote will be counted as
one in favour of the proposal. If the debtor cannot agree to the changes then the vote will be taken as against the proposal.

Because the debtor will have to decide whether to accept any suggested modifications the debtor should attend the meeting
of creditors but, if that is not possible, at the very least should be available by phone or email to confirm their decision.

If the IVA is approved by creditors the insolvency practitioner will be appointed Supervisor of your voluntary arrangement. It will then be his responsibility to ensure that the terms of the IVA are complied with and he will report to creditors regularly
and will make payments to creditors on your behalf. You will not have to deal with your creditors again and there should be no reason why they should contact you.

On conclusion of the IVA term, provided that you have complied with the provisions of the IVA, the insolvency practitioner will report to creditors and his appointment will end. You will then be debt free.

3.The Insolvency Practitioner

An IVA cannot commence until a fully qualified insolvency practitioner “IP” agrees to take on your case.

At the outset the IP should be prepared to offer you a free consultation to discuss your financial circumstances and to consider with you the options that you have.

If you decide to opt for an IVA and the IP agrees that it stands a good chance of success you will appoint the IP as the Nominee of your IVA, and the role of the IP will then be to advise you of the form that your proposal to creditors should take and to undertake the formalities of convening the meeting of creditors.

An experienced IP will be aware of the criteria that your particular creditors will have when considering you proposal and will assist you in formulating an offer that meets with their requirements and gives the best possible chance of the IVA being approved with the minimum of modifications.

The IP will be a member of at least one of the professional bodies that license insolvency practitioners and will be subject to a strict code of practice that is designed to ensure that you receive impartial and objective advice.

4. Your Income

Most IVA’s will offer to creditors a monthly payment in to the IVA equivalent to your surplus income. This amount is your net income for the month less what are regarded as your necessary outgoings, and your IP will assist you in formulating a monthly budget and will guide you as to what is acceptable expenditure.

You will have to provide evidence to your IP of your income and expenditure in the form of pay slips, P60’s, bank statements and other supporting documentation. An experienced IP will help you to formulate a budget that is achievable and should ensure that the monthly repayment is based on a sustainable level of earnings having made full provision for tax and other deductions such as union subscriptions.

Your monthly contribution will normally be calculated on your basic pay but if you receive additional payments such as overtime or bonuses creditors will expect you to pay 50% of the additional amounts in to the IVA.

In addition the Supervisor will be required to review your financial circumstances annually to consider whether you can increase your monthly contributions as a result of a change of circumstances.

5. Your Creditors

If you intend to propose an IVA it is essential that you demonstrate that you will treat all creditors equally. For this reason all unsecured creditors have to be included in the IVA and it is not advisable to exclude selected creditors.

There may be exceptional circumstances where this might not be possible, such as where an employee has borrowed money from their employer and where, to include the employer in the IVA, would lead to the dismissal of the employee and the loss
of the income. The IP will be able to advise you when such an exception should be considered and whether the creditors would be likely to agree.

An IVA will not include amounts owed to secured creditors. These are lenders who have taken security against their loan such as a mortgage on a property or HP on a vehicle. Secured creditors will be excluded from the IVA and provided that the loan
repayments continue to be paid there should be no reason why the secured creditor should seek immediate repayment.

There may be circumstances where a secured loan should be terminated prior to the commencement of the IVA, for instance to reduce outgoings. If this is appropriate arrangements would be made for the asset to be sold, with the agreement of the
secured lender, and any surplus would normally be paid in to the IVA. Alternatively, there may be a shortfall to the lender in which case they will then be unsecured creditors (their security having been sold) and their claims should then be included in the IVA.

6. Your Property

If you own the property that you live in it is very unlikely that you will have to sell it as part of the IVA. Your share of any equity in the property will have to be accounted for, however, since that equity would also have to be accounted for were you to be made bankrupt.

In the majority of cases the value of the equity is relatively small, compared with the overall unsecured debt, because it is common for people with financial difficulties to have already drawn down the maximum mortgage advance available.
The most common methods of accounting for the equity within the IVA are;

1. Remortgage at the end of the IVA to release the maximum equity available.
2. A third party, such as a partner who is not in an IVA, buys the equity.
3. A sale of the property to release the equity.

A sale of the property would only be necessary for the following reasons;

1. The property is excessively valuable, in the context of your debts, and results in an unacceptable level of outgoings in the form of mortgage repayments, running costs and maintenance.
2. Your share of the equity in the property is very significant compared to your debts and there is no other way of releasing equity because, for example, you cannot remortgage and there is no third party to buy out your interest.

Very similar principles apply to any other valuable assets that you own at the start of an IVA, particularly in relation to motor vehicles.

This does not apply to your household contents and personal effects, however, which are excluded from the IVA, provided that you do not own individual items of significant value.

7. How will an IVA affect you?

Perhaps the most important effect upon you will be that you will have learned to live without being reliant on credit. For 5 years you will have learned to budget and live within your means.

Your credit record will be impaired for at least one more year but this may not be a major concern to you if, by then, the availability of credit is no longer important to you. Relatively quickly, however, your credit record will improve and, if
necessary, you will be able to point to a successful IVA as an indication of your willingness to face up to your responsibilities, as opposed to taking the option of bankruptcy.

There are no public advertisements of your IVA and so it should remain a private matter between you and your creditors.
You should be aware, however, that the Department of Trade and Industry maintains a public register of live IVA’s.

You should also consider whether you are in a form of employment or a member of a profession that might be adversely affected by you entering in to an IVA. Certain employers and professional bodies may regard an IVA as a matter of concern which may prejudice your position, although these are relatively rare, and normally only apply to occupations that involve a high level of financial trust. The likelihood is that your IP will have advised other clients in similar positions and will be able to explain the implications of an IVA to you.

8. Who pays?

The fees of the IP are paid out of the money that you pay in to the IVA. This means that the return to creditors is reduced by the amount that the IP will charge and so, as part of the IVA, the creditors must approve the level of fees quoted by the IP. In effect, therefore, it is your creditors who will meet the costs of the IVA, and an experienced IP will ensure that the level of proposed fees is acceptable to your creditors.