1. What is an IVA?

2. Do you qualify for an IVA?

3. What is the procedure for approving the IVA proposal?

4. What happens after the IVA is approved?

5. What are the fees and what are they for?

6. Summary of possible benefits of an IVA.

7. Summary of possible disadvantages of an IVA.

8. How can DebtLine help you with an IVA?

 

1. What is an IVA?

• An IVA or Individual Voluntary Arrangement is a powerful instrument created by the government to provide relief for individuals in financial distress. It is a formal arrangement, a legally-binding agreement and it is a main alternative to bankruptcy.
• If you have a regular income but have difficulty repaying the full amount of your debts each month then you may qualify for an IVA. It is set up through the county court and is a formal arrangement or contract between you and your creditors to pay off a portion of your debts, usually over five years.
• Repayment in an IVA is based on what is affordable for you and what is acceptable to your creditors. In most IVAs, monthly payments are made but some may have quarterly payments and others can have lump sum payments. At the end of the IVA the remaining portion of the debts in your IVA is written off. However, should your circumstances improve dramatically during the term of the IVA such that you can fully repay the debts then you are required to do so. Otherwise, depending on your creditors, it may be possible to write off up to about 70% of your debts.
• For an IVA you must use the services of an insolvency practitioner (IP). IPs are usually accountants or solicitors who have been authorised under the Insolvency Act 1986 to act as insolvency office holders. There are six authorising bodies in the UK. If an IVA could be suitable for you and there is a chance it will be accepted by your creditors the IP can 'nominate' you for an IVA.
• In the IVA you can include unsecured non-priority debts from credit cards, store cards, catalogues, overdrafts and unsecured loans from banks, friends and family, VAT and tax arrears. Some priority debts like council tax can be included but most priority debts like utility bills, mortgages and loans secured on your property, rent arrears on your current tenancy, student loans, maintenance / child support arrears and court fines cannot be included.
• DebtLine works with a network of licensed insolvency practitioners who can help you set up an IVA.
• The IPs in DebtLine's network of insolvency practitioners have agreed not to charge any upfront fees which means that if they agree to work on your proposal and the IVA is not approved by your creditors, you will not be charged for the work done.

2. Do you qualify for an IVA?

• You may qualify for an IVA with an IP on the DebtLine.co.uk network if
• you have at least £15,000 of debts.
• the number of debts is at least three.
• the debts are owed to two or more different creditors.
• you have difficulty making your payments.
• you have at least £200 of disposable income every month to pay into an IVA or you can make an acceptable lump sum payment.
• Send us the short IVA Enquiry form to check if an IVA proposal can be made to your creditors.

3. What is the procedure for approving the IVA proposal? (back to top)

• Your IP will be able to guide you in determining the type and level of expenditure which may be acceptable to creditors, work with you to determine an affordable repayment amount and help you prepare the IVA proposal.
• While preparing the IVA, your IP can – if necessary – help you apply to the county court for an Interim Order (if an application has not already been made in the last twelve months) to stop enforcement actions by your unsecured creditors while the IVA proposal is being prepared.
• From the financial information you provide, the IP will subtract your expenditure from your income to determine your disposal income which can go into the monthly payments. The IP will also look at what assets are available to you which could contribute towards payments into the IVA. Regardless of whether you are a homeowner or tenant, employed or self-employed, you need to prove to the IP that the monthly payments from your disposable income are affordable.
• If it is suitable and there is a chance of success the IP can nominate you for an IVA and help you prepare the IVA proposal for your creditors. At this stage the IP will be your Nominee. It usually takes several weeks to set up an IVA and it will depend on the complexity of your financial circumstances.
• It is necessary to provide all the required information and to cooperate fully with your IP because creditors need to accept that the figures in the proposal are correct or it is unlikely that they will approve the IVA. And if it is discovered later that an IVA was granted on misleading information it may be grounds for failure of the IVA and, possibly, criminal prosecution.
• In all instances you will need to provide the IP with information on who you owe money to, how much is owed, what you own, what you earn and what your monthly outgoings are. In other words, your creditors, debts, assets, income and expenditure. Generally, all this can be done over the phone, by email or post. If you are self-employed you may need to have a meeting with the IP.
• If your IVA qualifies as a 'straightforward consumer IVA' then, wherever possible, the IP in DebtLine's network will use the IVA Protocol – which is a set of rules to more efficiently process qualifying IVAs.
• Your IP can discuss the possibility of your IVA with your major creditors, negotiate with them and organise a creditors' meeting where a vote on whether or not to accept your IVA will be taken. Most creditors prefer to vote before the meeting takes place. Your presence at the meeting is usually not necessary but your IP can let you know if it is preferable for you to attend.
• If at least 75% by debt value of the creditors who vote accept your IVA proposal then your IVA is approved and binding on all creditors, including those who did not vote or who had voted to reject your IVA. This means that your IVA could be approved if just one creditor voted to accept.
• If the IVA proposal is rejected then you would continue to owe the full amount of the debt, and if you have paid upfront fees you will have lost this money which will put you further in debt.
• Any creditor who should have been included in the IVA but has been left can take legal action to challenge the IVA and the court can revoke the approved IVA, which is why it is important to include all qualifying creditors.

4. What happens after the IVA is approved? (back to top)

• Once the IVA is approved at the creditors' meeting, the duties and responsibilities of the IP change from being that of a Nominee to that of a Supervisor.
• As a Supervisor your IP will administer the IVA, collect the payments from you and make the payments to your creditors and carry out the required periodic reviews of your finances.
• Creditors for all of the debts included in the IVA cannot start or continue any action or legal proceedings against you.
• If your IVA can be classified as a 'straightforward consumer IVA' then a voluntary agreement between the IVA provider and the creditors may be used to make more efficient the handling of the IVA. This is the IVA Protocol which is a set of rules to be followed in order to more efficiently process the IVA but, because of the criteria required, not all IVAs will fall in this category.
• If you are a homeowner then, usually, six months before the end of the IVA you may be required to release your share of the equity or where a remortgage is not possible then the IVA can be extended by up to twelve months.
• If your circumstances change and you are unable to meet the required payments then your IP may be able to negotiate lower payments but your creditors are not obligated to accept and if they refuse lower payments then the IVA will fail.
• If your IVA fails then your creditors can then take legal action to recover their money and they or your IP can petition for your bankruptcy.
• A certificate of completion is issued at the end of a successfully completed IVA and your outstanding debts are written off. Depending on your financial circumstances, your creditors and your IP, the percentage of debts written off can be from about 50% up to about 75%.

5. What are the fees and what are they for? (back to top)

• There are two events in the IVA process which determine the different roles of the IP and the fees which may be applicable. The first is when the IP nominates you for an IVA and the second is the creditors' meeting to vote on the approval of the IVA.
• Before nominating you on the understanding of, possibly, handling your IVA the IP can advise you on the various debt options open to you. At this stage the IP will be acting as a professional adviser to you.
• If you decide on an IVA and the IP agrees to nominate you then the IP becomes your Nominee and is involved with
  • applying to the court to start the IVA process,
  • applying for an Interim Order to prevent creditors taking bankruptcy proceedings (if required),
  • assessing your financial circumstances and helping you prepare the IVA proposal to present to your creditors,
  • communicating with your creditors and sending the proposal to them,
  • setting up the meeting for the creditors to vote on whether or not to approve your IVA,
  • assessing any changes which creditors may want to make to the IVA.

As a Nominee the IP also has legal responsibilities to your creditors and the court.

• The nominee fee is usually a fixed amount. Some IPs charge upfront fees for this work while others wait until the IVA is implemented and take the fee out of the first payments made into the IVA. (Note that the IPs in DebtLine's network do not charge upfront fees.)
• If your IVA is approved at the creditors' meeting then the IP becomes the Supervisor of the IVA and fees are payable for the work involved with supervising the IVA. Depending on the complexity, Supervisor fees can be 15 to 20% or so of the total amount payable to your creditors. This will be included in the monthly payments into the IVA.
• As part of the Supervisor's duties the IP (or representative) has to collect the payment from you and distribute this to your creditors, regularly review your financial circumstances to determine if IVA variations are needed, oversee the IVA and present reports to you and your creditors at least once a year. The Supervisor has to ensure that all parties to the agreement adhere to the terms of the agreement. Your IP should tell you exactly what the fees are and all fees should be set out in the IVA proposal.

6. Summary of possible benefits of an IVA (back to top)

• Fixed amount to repay over a fixed term – Unless there are changes in your financial circumstances leading to amendments in the IVA, the monthly payment is a fixed amount over the term of the IVA. Monthly payments are based on what you can afford to pay regularly. There are no interest charges - fixed or variable - or late payment charges or other charges because interest and other charges are frozen. An IVA is very different to an informal arrangement like a debt management plan (DMP) where the amount to repay and the term can vary. Debts in a DMP can grow significantly if interest and charges are not frozen. If DMP payments are too low then such a DMP can run for many years with the possibility that debts may never be settled.
• Debts written off - At the end of a successfully completed IVA – which is usually 5 years – all outstanding debts in the IVA are written off (composition of debts). Being released from a large proportion of your debts (possibly 50% to 70%) can lift a huge weight off your mind and give you the chance of having a fresh financial start in life. This is different to informal arrangements like debt management plans where creditors have no legal obligation to write off debts or to freeze charges, so DMP debts can increase over the years.
• Less publicity and less stigma - Unlike a bankruptcy where legal notices of bankruptcies are published in the local papers, IVAs are not advertised in this way. For this and a number of other reasons, having an IVA is not perceived with the same level of stigma as being a bankrupt.
• Home can be saved - In an IVA you will usually be required to release most of your share of the equity in your house instead of having to sell it. In straightforward IVAs, if remortgaging is not possible, you may have to extend the IVA for up to twelve months. In a bankruptcy it is likely that your home and other assets of value will be sold to pay your debts.
• Less restrictions – There are fewer and less harsh restrictions in an IVA compared with bankruptcy. If you are self employed or running a business you can continue to trade, and an IVA may not affect professions like the Police or the Armed Forces. Bankruptcy affects many professions and imposes a higher level of restrictions which usually include the closing of any business you run (although, subject to restrictions, you can start again). Criminal offences for undischarged bankrupts include obtaining or trying to obtain certain levels of credit without disclosing the bankruptcy. An IVA may also have less damaging affects on your credit rating than bankruptcy.
• Legally binding on creditors - During the term of your IVA, creditors cannot take legal action against you for the debts in your IVA because they are legally bound by the agreement, if you keep to the terms of the agreement. This applies even to the creditors who voted against the IVA. Even phone calls, chasing letters and emails should all stop. This is different to informal arrangements like debt management plans where your creditors are not legally bound so they can change their minds at any time and take legal action to recover their money.

7. Summary of possible disadvantages of an IVA (back to top)

• Upfront fees - Some IPs may charge upfront fees and if your IVA is rejected by the creditors then you would have lost this money. (IPs in the DebtLine.co.uk network do not charge upfront fees.)
• Credit rating affected - A record of your IVA will be held in the Individual Insolvency Register's online database which is available for the public to search. This is used by credit reference agencies and a record of your IVA will be created in your credit reference file held by credit reference agencies. This will remain on file for six years from the date of inception of your IVA or longer if the IVA is extended.
• IVA can fail - If you are unable to make the agreed payments then your IP may be able to negotiate lower payments but if your creditors refuse to accept lower payments then your IVA will fail. The IVA can also fail if you don't comply with other terms in the agreement and if your IVA fails then your creditors can pursue you for the full amount of your debts and they or your IP can petition for your bankruptcy.
• Loss of extra money – Your income and expenditure will be regularly reviewed and your IP must be told of all windfalls, bonuses, inheritances and new income in order to consider how it affects payments to your creditors. You may have to pay a proportion of any extra money you receive into the IVA.
• Equity release - You may have to release your share of the equity in your home near the end of the IVA to pay your creditors or you may have to extend the IVA by twelve months.

8. How can DebtLine help you get an IVA? (back to top)

• If you feel that an IVA could be suitable then just send us the IVA Enquiry form and we will try and help.
• The information you provide will be sent to an accountant or solicitor in our network who is authorised to act as insolvency office holder. The IP will contact you to discuss your financial situation. We will send you the details of the IP who will call you. The IP will advise you on debt solutions and may agree to nominate you.
• No upfront fees will be charged by the IPs in this network so if the IVA proposal is not approved by your creditors then you will not be charged for the work done.