Who pays the bill for my Individual Voluntary Arrangement?
"Who pays the bill or fees for an Individual Voluntary Arrangement ?" is a very natural question to ask oneself, especially if you are considering using an IVA to become debt free.
There has been much debate over this subject recently so, as a result My IVA Adviser would like to explain as clearly as possible how the fees for an IVA arise and how they are paid.
But regarding the argument as to who it is that ends up paying them, we'll leave that up to you to decide.
No Set-Up fees
MY IVA Adviser do not charge any set-up or arrangement fees should you choose to apply for an IVA through us.
Click this link to read about our No IVA - No Fee policy.
To begin with it should be understood that all IVA's have administration fees and there are no exceptions.
The administration fees are charged by the Insolvency Practitioner, which is the name given to the licensed professional responsible for setting up and administering the IVA case.
A licensed Insolvency Practitioner, sometimes referred to as the IP, is usually an accountant or solicitor with many years experience within the insolvency industry.
UK insolvency law states that only a licensed Insolvency Practitioner is allowed to administer an IVA.
Most Insolvency Practitioners employ a team of qualified assistants at their office, known as an insolvency practice, to help them with the preparation and administration of the IVAs they undertake.
What about debt charities?
All insolvency practices run as commercial businesses as the people working in them need to be paid for the work they do.
Furthermore, there are no Insolvency Practitioners who provide their services for free, not even those associated with the debt charities or the CAB.
The CCCS, Payplan and the National Debt line, amongst others, all refer their IVA work to commercial insolvency practices and administration fees are always charged.
So there are no such thing as 'fee free' IVAs, irrespective of which Insolvency Practitioner or insolvency practice you use.
What do creditors think?
Without doubt, creditors recognise the importance of the role played by the Insolvency Practitioner.
Without the formal structure of the IVA and a licensed Insolvency Practitioner in place to ensure the IVA is adhered to, the chances are that any informal agreement would flounder and fail.
This is one of the main reasons creditors accept the involvement of the Insolvency Practitioner and the subsequent fees they charge as they recognise the Insolvency Practitioner actively improves the IVA success rate, which in turn recovers more outstanding debt.
Insolvency Practitioner's fees
The Insolvency Practitioner's fees break down into two primary parts:
- The Nominee fee: This fee covers the cost for all the preparatory work carried out on the IVA proposal, the document produced which outlines the individual terms of each IVA. The actual fee varies from case to case, but it is usually set to around the same value as 5 monthly IVA contributions.
- The Supervisor fee: This fee covers the costs for the administration and supervisory work carried out over the full duration of the IVA, ensuring that the terms of the IVA are adhered to. This fee will also vary between cases, but as a rule of thumb it is normally about 15% of the amount recovered.
The fees are detailed in the IVA proposal and agreed by Creditors at the Creditors' Meeting. It is not unusual for creditors to haggle with the Insolvency Practitioner over the fees they can charge, especially if they believe they are too high.
Once the creditors have agreed how much the Insolvency Practitioner can charge they allow the IVA fees to be taken from the IVA fund. This is the name given to the fund made up of the IVA payments collected by the Insolvency Practitioner.
The IVA fees do not impact on what the IVA applicant is expected to pay into the IVA as the IVA contributions are predetermined to what has been agreed as being affordable.
Successful completion of an IVA
At the successful completion of an IVA a certificate of completion will be issued by the Insolvency Practitioner and the IVA applicant will be legally debt free.
If any of the original debts have outstanding balances at this time they will be written-off. There will be no further payments to be made in relation to fees, as the fees will have already been paid from the IVA fund.
So, the debate continues as to who bore the cost of the fees?
Was it the creditors who allowed the fees to be deducted from the IVA fund before they wrote-off the outstanding balances, or was it the IVA applicant who paid the IVA fees from their contributions, but had more of their original debt written-off?
We think you should decide for yourself.
When an IVA fails
In contrast, however, should an IVA fail to complete to its full term, things take a turn for the worse for the applicant.
This is because the first money to be paid into the IVA fund will inevitably be taken as fees by the Insolvency Practitioner. This money will, therefore, will not have been repaid to creditors and the outstanding debt will not have significantly reduced.
By not completing the IVA to fruition the debt write-off never materialises and the original debt will survive and any Insolvency Practitioners fees drawn up to this point will not be refunded.
Things also change in the event of a large windfall coming in to play, such as an inheritance, an insurance payout or a redundancy payment.
If the applicant receives a windfall during the IVA term they are legally obliged to inform the Insolvency Practitioner and the windfall clause will be activated.
Under the windfall clause, if there are sufficient funds available to repay the original debt in full they must be introduced into the IVA.
If there are still enough funds available from the windfall, statutory interest will be charged on the outstanding balances and any outstanding Insolvency Practitioners fees must also be paid.
If you enter into an IVA and your circumstances remain consistent throughout the IVA term, the chances are you'll benefit from a substantial debt write-off and you'll not have to worry about the IVA fees as they are included in your IVA contribution.
If, however, you enter into an IVA and it fails to complete, chances are you'll be the one paying for the IVA fees.
Would you like our help?
If you'd like to have a chat about IVA fees and how they are charged, or about any other aspect of the IVA process, why not give our helpline a call on 0800 088 7503 or, if you prefer, simply complete this form and one of our adviser will contact you at the time of your choosing.