An Individual Voluntary Arrangement can be an ideal way of starting your journey to a debt-free future without the stigma of bankruptcy hanging over you. If you owe more than £15,000 of unsecured debt with two or more creditors, and have regular income from a job or self-employed contracts, an Individual Voluntary Arrangement could be the right option for you.
There are a handful of careers where bankruptcy can make life especially difficult, such as those in the legal or financial services, civil service and armed forces. Even if you don’t work in any of these careers, you may find that your employee contract contains a clause classing bankruptcy as a dismissible offence. For some an Individual Voluntary Arrangement may be the only option.
But an Individual Voluntary Arrangement should not to be undertaken lightly. It is a legally binding agreement and requires an Insolvency Practitioner to help set up and then supervise the management of your creditors for up to five years. However they are an enormously flexible debt repayment method and have a number of far-reaching benefits;
- From the moment your Individual Voluntary Arrangement is set up your debts will be frozen, and interest or charges are no longer added. Any legal proceedings will be stopped, although your Insolvency Practitioner may be able to halt all proceedings using an Interim Order before the Individual Voluntary Arrangement is granted.
- You get to keep your home and other assets. As long as an asset is not considered surplus to what you need to live – such as a second property – you will not be required to sell it under the terms of your Individual Voluntary Arrangement. You may have to remortgage if you have some equity in your home, but assets such as life insurance or a vehicle that you need for work will be excluded.
- Only your actual disposal income is taken into account for an IVA. General living expenses, such as rent and housing-associated costs, food and travelling expenses are allowed although luxuries such as holidays, clothes and gym membership will not be. It really isn’t as Draconian as it sounds though! It is possible to have a good standard of living with an IVA.
- There’s very little chance that anyone will find out about your Individual Voluntary Arrangement. It’s a completely confidential matter between you, your Insolvency Practitioner and your creditors. This is in direct contrast to bankruptcy, where a formal notice is advertised in your local newspapers and the London Gazette for all to see. The only way your family, friends or work colleagues will find out is if you tell them or they go to the lengths of requesting the information from the Department of Trade and Industry, which will list your Individual Voluntary Arrangement as a matter of public record.
- Your unsecured creditors cannot harass you once you have yourAgreement is in place. They are legally bound by the terms of that agreement and cannot demand payment or instigate proceedings against you under any circumstances as long as you keep up your regular monthly payments. Neither will you have the worry or the stress of dealing with creditors any more. Your Insolvency Practitioner will take on the management of your IVA and pay them on your behalf. All you have to do is ensure you keep up with your payments every month and they will take care of distributing the money to them It’s a tremendously reassuring feeling knowing there’s someone on your side.
- If you’re a business owner you can keep trading relatively smoothly despite having an Individual Voluntary Arrangement. Its flexibility means it may not even be an obstacle to you obtaining credit, although the terms of your agreement may contain a clause preventing you from seeking credit. On the other hand bankruptcy has a negative impact on a business – partnerships are usually dissolved and you will be prevented from being a company director. If you are a sole trader, you may have to tell suppliers you are bankrupt if you want to obtain credit from them.
- A proportion of your debt will be written off. Once your IVA has finished, any outstanding unsecured debts will be written off. This can be as much as 75%, although most creditors typically write off an average of 60% of your debt.
If you’re seriously contemplating bankruptcy, speak to an experienced advisor to discuss if an IVA would work better for you.