What is an IVA?
IVA stands for an Individual Voluntary Arrangement and enables a person with financial difficulties to put into place a legally binding payment plan in order to pay off outstanding debts. An IVA is settled between the individual in question and the people they owe money to, their creditors.
As an IVA is legally binding it can only be set up by a licensed professional known as an Insolvency Practitioner.
Applying for an IVA
Upon an Insolvency Practitioner agreeing that an Individual Voluntary Arrangement is suitable for you and your circumstances, you shall settle on an achievable monthly repayment amount. You will need to provide information concerning your current financial situation in order for this to be an appropriate amount that you shall be able to pay every month. Once this information has been agreed you shall be required to sign an official proposal.
An Interim Order shall then be applied for through the court by your Insolvency Practitioner. No creditors shall be able to take legal action against you once this order is in place, however you may be asked to attend a meeting with your creditors. However, this is very rare and you are usually only required to be contactable via telephone on that specific day.
At the creditors meeting, your individual creditors will be asked to vote for or against the IVA. It only takes one of your creditors to vote ‘for’ the IVA in order for it to be accepted. On the other hand, if only one creditor votes ‘against’ the IVA, and they represent 25% or more than your total debt combined then the meeting shall be classed as pending, and the creditors that did not vote shall be called to do so.
However, if the creditor that voted ‘against’ the IVA still stands for more than 25% of the total debt, despite the other creditors voting ‘for’ the IVA, then the IVA will be rejected. This is due to the fact that an IVA will only be granted if 75% of the monetary value of the debt is voted for. But, if the IVA is granted it binds all creditors, even those who did not vote.
Advantages of an IVA
Once your IVA is in place your debt charges and interest fees are frozen. This means that your creditors are no longer able to demand payments from you or continue to add interest and tax onto your debts.
Rather than struggling to pay monthly instalments to several creditors, an IVA enables you to pay one reduced amount a month. This amount gradually pays off any debt and typically lasts for five years.
The monthly instalments are calculated from the individual’s monthly income minus their expenses. Because an IVA is legally binding, unlike Debt Management Plans, if the monthly instalments are paid regularly for the duration of the agreed period, once this period comes to an end you shall be free from the debts, regardless of how much has been paid off.
Your financial position is reviewed regularly throughout the period of your IVA to determine whether or not your situation has changed. This is done in order to ensure that you are financially able to stay committed to the IVA.