IVAs were introduced in 1986 as an alternative to bankruptcy for small businesses. However, it quickly became clear they were an ideal debt management solution for individuals too, and they’ve gained popularity ever since.
IVAs are fairly straightforward in the way they operate, and here is a brief guide to what’s involved in obtaining one.
Deciding on an IVA
The first step to getting an IVA is to talk to a debt counselor or Insolvency Practitioner (IP) and get an assessment of your financial position. They’ll go through all of your financial paperwork and help you decide if an IVA really is the right product for you. They will be able to give you impartial advice and may even come up with other ideas you hadn’t thought of.
Drawing up the IVA agreement
Once your review is complete, if an IVA is the most appropriate for your circumstances you will need an IP to put the wheels in motion for you. First they will seek an ‘Interim Order’ at the county court to stop any creditors taking action against you while you apply for your IVA. Then they will ask you to compile a household budget to find out how much surplus you have left over from your income before you make unsecured debt payments. To go forward with an IVA, ideally this should be a minimum of £150.
Acceptance from Creditors
Your IP will draw up a proposal to submit to your creditors detailing how they would be paid back under an IVA. The creditors then meet to vote on whether to accept the proposal. For an IVA to succeed 75% of the creditors by debt value must agree to the proposal. So for example if you owe £20,000those creditors that make up at least £14,000 of the debt (75%) must agree. Once you have this agreement, those creditors making up the remainder of the 25% must comply, even if they did not agree, because it is now a legally binding document.
During the IVA
Once you have your creditors agreement, from that day forward you are in an IVA and all interest and charges are not applied as long as you stick to the repayment plan. You make one monthly payment every month for 60 months to your IP, who will distribute it to your creditors and deal with all communications with them from then on. Creditors are not allowed to contact you at any time.
Your IP will undertake periodic reviews of your finances to take account of fluctuations in income. Any cash gifts, bonuses or lottery wins must be declared, and you IP will make a decision how much they will take to pay creditors. There are no set rules for this – it is down to the discretion of your IP if the whole lot is taken or just a proportion.
Completing the IVA
Once your have made all the payments required of you under the terms of your IVA, any remaining debt is cancelled and you will owe nothing more. A certificate of discharge will be sent to you once your IP has finalised all the paperwork associated with it, and from then on you will be free from debt.