IVA Process
IVA Process Overview
An Individual Voluntary Arrangement, or IVA as it is also referred to, is a formal repayment agreement between a debtor (a person owing money) and their creditors (the people they owe the money to).
An IVA is a legally binding agreement that allows the applicant to offer reduced monthly payments to their unsecured debts for a prearranged fixed term, which is normally set to 5 years.
An IVA can only be proposed and administered through a licensed Insolvency Practitioner (IP)
Not everybody will find they qualify for an IVA as there are minimum IVA requirements that must be met before an IVA can be considered. To qualify for an IVA you must have a minimum of £12,000 unsecured debt which must be owed to at least 2 different companies.
It’s remarkable how few people have heard of the IVA process, or confuse an IVA with the other, more common place debt solution of a Debt Management Plan (DMP), which is actually an informal agreement and does not give any legal protection or debt write-off.
There are several other significant differences between the two solutions, so follow this link to read the comparisons of an IVA vs Debt Management Plan.
An IVA serves as an alternative to Bankruptcy for people whose occupations would be adversely affected by bankruptcy, for example police officers, prison officers, armed services personnel, accountants, lawyers and other public servants and qualified professionals.
Unlike Bankruptcy, an IVA is essentially a private agreement and is not published in the press.
To be eligible for an IVA you need to be in employment, or receiving an income the majority of which is not generated through the benefit system. You can also apply for an IVA if you are Self Employed, as can people who are in Partnerships, L.L.P’s. and Directors of Limited Companies.
During the IVA, creditors are legally obliged to freeze interest and must not add late payment charges to the applicant’s outstanding debts. Creditors must also refrain from contacting the applicant in relation to the outstanding debts for the duration of the IVA.
Once the IVA has been successfully completed, any outstanding balances are legally written-off, leaving the applicant completely debt free.
Acting as an alternative to the typical 5 year IVA there is also the Full and Final Settlement IVA.
N.B: This type of IVA is less common than the traditional 5 years IVA, and is used to assist debtors who are unable to afford an IVA via monthly repayments, but who instead have access to a lump sum.
The lump sum can be generated by the sale of assets owed by the debtor, or provided through a 3rd party, but either way is offered to creditors through a Full and Final Settlement IVA. The Full and Final Settlement IVA carries all the same benefits for the applicant as the traditional 5 years IVA, ensuring all creditors are legally bound to the settlement once an agreement has been reached.
The Complete IVA Process
Once an applicant has decided that an IVA is their preferred course of action, an IVA consultation is undertaken.
During the consultation all the personal circumstances surrounding the case are discussed to ensure an IVA is actually a viable solution, and a financial assessment is made in order to establish the size of the proposed IVA payments.
The IVA’s monthly repayments are calculated and set to a level which is proven to be affordable for the applicant, once their normal and reasonable living expenses have been accounted for. These include priority payments such as rent or mortgage, vehicle running costs, utility bills, Council Tax and all other household costs such as allowances for food and clothing.
The case is then passed to a licensed Insolvency Practitioner (IP) who, in turn, undertakes the role of the IVA’s Nominee, and arrangements are made for an IVA Proposal to be drafted.
This is the name given to the legal document that outlines the terms of the IVA, and it is prepared and written by an IVA drafter, a key member of the IP’s team.
It is during this part of the IVA process that care is taken to account for the all applicant’s assets, including equity in property they may have, endowment policies or saving plans etc.
If the applicant has equity in a property, or an endowment policy, it should be declared in the proposal.
When the Insolvency Practitioner (IP) is satisfied the IVA Proposal is ready, it will be sent to the applicant for confirmation the details within it are correct. Once the applicant is satisfied with the IVA Proposal, they are required to sign and return it to the Insolvency Practitioner.
This process will normally be completed within a 2-3 weeks time frame, but can take longer if the Insolvency Practitioner’s workload is heavy.
Once signed and returned, the Insolvency Practitioner (IP) will lodge the IVA Proposal with the Court, and notify all the applicant’s creditors.
In some circumstances, a creditor may have already begun legal action against the IVA applicant.
In such cases, and at the sole discretion of the appointed Insolvency Practitioner (IP), it is possible to apply for an Interim Order. An Interim Order will protect the applicant from any further Court action being taken until the outcome of the IVA’s creditors meeting is known.
The next stage of the IVA process is the Creditors Meeting.
Creditors must be given a minimum of 17 days notice of the Creditors Meeting, during which they cast their vote to either accept or reject the proposed IVA.
There is no legal requirement for the applicant to be present at the Creditors Meeting, but they should be contactable via a telephone whilst the meeting is being held.
Creditors must agree to, or ‘vote to accept’ the IVA proposal during the Creditors Meeting for it to become legally binding, and there is a complicated voting procedure by which all IVA’s are deemed to have been accepted or rejected.
The voting rules of an IVA state that providing 75% (in value terms) of those that have voted, vote to accept the proposals (with or without modifications) then the IVA is agreed and becomes legally binding on all other parties whether they voted or not.
The effect of this is that, any creditor who chooses not to vote at the creditors meeting is bound by the decision of those who do.
An IVA can also be accepted with conditions attached. These conditions are called Modifications and can range from modifications to the Insolvency Practitioner’s fees through to a modification of the size of IVA’s monthly payments.
If there are any modifications made to the IVA Proposal at the Creditors meeting, the applicant will have the opportunity to accept or decline the changes, before the IVA becomes legally binding.
Once the IVA is accepted it becomes legally binding on all the creditors involved, whether they voted in favour of the IVA or not.
Equally, should a creditor decide to not vote at all, they will be bound by the decision of those creditors that do.
Next the IVA is recorded on the IVA register and it will remain on the register for its full duration.
From this point onwards, the Insolvency Practitioner undertakes the role of IVA Supervisor, ensuring the IVA terms are upheld by the applicant for the duration of the IVA.
Payments made into the IVA by the applicant are distributed to creditors on a pro-rata basis for the duration of the IVA.
The responsibility for making the IVA repayments lies solely with the applicant and they should make every effort to keep up the repayment schedule as a failure to maintain repayments could lead to the failure of the IVA.
Should the applicant experience payment problems whilst in the IVA, the Insolvency Practitioner (IP) ought to be informed immediately, so that, if necessary, a Variation Meeting can be called, at which an amendment to the original IVA can be agreed with creditors.
On the successful completion of the IVA, the Insolvency Practitioner (IP) will notify all the creditors involved, and provide the applicant with a ‘Notice of Completion’.
As part of the IVA’s terms, any debts that have not been repaid through the IVA must be written off by the creditors, and the applicant will be considered debt free.
After the IVA, the applicant is free to begin rebuilding their credit worthiness, and by providing a copy of their ‘Notice of Completion’ certificate to the main credit agencies, Experian, Equifax and Call Credit, a note can be placed on their credit file, informing of the successful completion of their IVA.
At this stage the IVA is removed from the IVA register.
The debtors credit file will carry the IVA for the full duration of the IVA and for another year after it has been completed, 6 years in all.
After this time the debtor’s credit file will have no mention of the IVA, but gaining further credit may remain difficult for some time.
For further information about the IVA and Bankruptcy options click here: IVA vs Bankruptcy
For more information on IVA’s please use our IVA FAQ’s
To discuss your circumstances with a qualified IVA specialist call My IVA Adviser now on 0800 088 7503