IVA stands for an Individual Voluntary Arrangement. It’s a potential solution for people struggling with personal, unsecured debt. An IVA is a formal insolvency solution where debtors repay their debt but with one affordable monthly payment. It lasts for a fixed period of time, typically 5 years – at which point all remaining debt has to be written off. An IVA is set up and supervised by a licenced Insolvency Practitioner (usually a qualified lawyer or accountant) who acts as the bridge between debtor and creditors.
For an IVA to go ahead creditors representing at least 75% of the total debt have to agree to the proposal to make it legally binding on all creditors. Once agreed, the payments begin – administered by the Insolvency Practitioner and distributed to the creditors on a proportionate basis relative to the size of their debt. The fees charged by the Insolvency Practitioner will come from those monthly payments, in agreement with the creditors.
The process often begins when the debtor makes contact with an IVA company or seeks advice from an organisation such as the Citizen’s Advice Bureau. Once contact is made it is the role of the advisor to explain all debt solutions to the debtor. These solutions will include some do it yourself ideas (making arrangements with creditors, utilising assets, debt consolidation), bankruptcy and managed repayment plans. And of course – IVA’s, the focus of our attention here. The advisor will take note of the debts, any assets, income and outgoings.
A certain minimum debt level is required to qualify for an IVA – usually at least £5000. And then a figure is calculated that would be affordable to pay back on the combined debts. So income is noted and then a list of reasonable household and personal expenses is drawn up, and the difference between income and outgoings is the available amount for debt repayments (often called the disposable income). Outgoings allowed is a balancing act because the debtor has to be able to live properly during an IVA but at the same time, creditors want as much of their debt back as possible. It is the responsibility of the Insolvency Practitioner to represent each side to the other in a fair manner. We all vary in our spending habits, so apart from the fixed expenses (e.g. household bills) there are industry approved guidelines for other expenses (e.g. food, clothing, social etc.)
The figure arrived at for the disposable income could be too low or (ironically) too high for an IVA. If it’s felt that the debtor needs most or all of their income simply to live on then an IVA may not be possible. Many IVA’s are successful at payments of less than £100/month. But too low and following fees that are involved, there is simply not enough funds to make the IVA viable. Bankruptcy, a Debt Relief Order or making token payments to creditors become some of the alternative solutions. For others there may be too much disposable income to justify an IVA. If it looks as if the debtor could realistically afford to clear the debt within the 5 years that an IVA usually lasts, then an alternative is usually recommended.
So for example, someone with £10,000 of unsecured debt – if their disposable income was £40/month an IVA is unlikely to work. And if their disposable income was £250/month – again, it’s unlikely to work as it’s perfectly possible to set up a Debt Management Plan at £250/month and clearing the debt between 3 and 4 years.
But for many – an IVA provides a way out of the nightmare of increasing debt and increasing desperation. Once an IVA is set up and agreed many folk find a plan that really works. A budget has been worked out, an affordable monthly payment has been calculated – and no more demanding letters or phone calls, no juggling monies to pay one debt with another form of credit – and a definite end point planned when we will be debt-free.