IVA Background

Introduced as part of the Insolvency Act 1986, the IVA has been designed as a practical method by which individuals struggling with debt are able to manage this burden and better manage their financial position, whilst avoiding personal bankruptcy.

An IVA is a legally binding, contract between a debtor and their unsecured creditors under which the individual agrees to pay a regular monthly contribution into a trust account supervised by an Insolvency Practitioner. The Insolvency Practitioner is responsible for ensuring payments are made by the debtor and for making distributions to creditors. The payments are over a given term (usually five years) and if the individual is a property owner he may also agree to release equity in that property by way of a re-mortgage towards the end of the IVA process. IVAs provide a number of advantages to debtors over alternative debt resolution procedures.

These include:

• Avoiding bankruptcy and the perceived associated stigma and disqualifications, such as directorship and membership of some professional bodies;
• Reducing the amount payable. It is common for creditors to forgive an element of the debt on completion of an IVA. In addition, interest on outstanding balances is frozen upon approval of an IVA;
  
• Providing certainty to debtors regarding the level and duration of payments. IVAs result in the debtor being seen to be making an effort to repay their creditors and as such may be looked on favourably by lenders when seeking new credit arrangements in the future; and
  
• Providing protection to the debtor from creditor recovery action. An approved IVA is binding on all creditors regardless of whether they voted in favour of the proposal.

 

The principal advantage of IVAs to creditors is that they offer the opportunity for higher levels of debt recovery compared to alternative procedures such as bankruptcy. Typically under an IVA, a creditor can expect to receive dividends within the range of 35pence to 40pence in the pound. In a bankruptcy unsecured creditors may receive nothing.

IVA Process and Criteria

Creating an IVA is a multi-stage process, which commences with a debtor recognising they are unable to cope with their debts. Most debtors approach Money Debt & Credit as a result of seeing our advertising and marketing or being referred by a third party. After assessing the debtor's circumstances we will, if appropriate, assist them in drafting an IVA proposal to be put to their creditors. Legislation governing IVAs binds all creditors to accept the terms of the IVA if it is approved by over 75 per cent. in value of creditors voting at the meeting. In the case of Money Debt & Credit the process of preparing an IVA typically takes two months to complete. The usual debtor profile in order for a case to be considered suitable by Money Debt & Credit for an IVA will typically meet the following criteria:

• Debts greater that £15,000;
• Three or more creditors;
• Disposable income of over £200 per month and in full-time employment or self-employed;
• Little or no equity in the debtor's property.

Where customers are unsuitable for an IVA, we may advise them to consider bankruptcy or redirect them to an organisation such as the Insolvency Service or Citizens Advice Bureau. Where appropriate the Group may also refer individuals to a debt management organisation or mortgage broker but always on the most appropriate advice terms.