What is an IVA?

An IVA is an individual voluntary agreement that a debtor undertakes/ pursues to settle his accumulated unsecured debts (although it may include, in some cases, secured debts). This arrangement, established and governed by the Insolvency Act 1986, seeks to give debtors an easier debt solution plan, than bankruptcy, and protect creditors from absolute losses. Parties in this arrangement, in addition to the debtor, include creditors, insolvency practitioners, courts and credit referencing agencies among others. All individual voluntary arrangements must be reported to credit referencing agencies, from which a person’s credit score gets affected for a period of not less than 6 years, from the day the process began.

Working mechanism of an IVA
As a debt solution option, Individual Voluntary Arrangements give debtors flexible and less stressful debt payment options, in that debtors work out the amount and number of payments they can afford. The plan must cover a minimum of 5 years, although a 12 months extension, from 5 years, may be granted, depending on a debtor’s circumstances and his/ her having equity in some property. Debtors, with some guidance from financial advisers or insolvency practitioners, assess their (debtors) financial position (the debt, income, assets, expenses, etc), and then weigh whether an IVA represents the best option of the debtor getting out of debt or other options would be better choices.

If and when the debtor settles on an individual voluntary arrangement, he/ she must employ an insolvency practitioner as stipulated by the Insolvency Act 1986. The Insolvency Practitioner must analyze the financial information and plan of action provided by the debtor, and establish its authenticity and the debtor’s sincerity in working towards solving the debts. Ideally, the process starts with application by a debtor, through the IP, and ends with the discharge of part of the debt if and when the debtor honors the terms of payment to the letter. To Apply for an IVA visit the Simple Financial Solutions website here and use the free online calculator to see if you qualify.

IVA nullification
The arrangement can, however, terminate at any stage. This can happen if and when the debtor does not provide full/ correct information regarding his financial status, the creditors or IP seeks to challenge this arrangement, the debtor goes insane or dies and if and when the debtor pays up his debts through any other legally acceptable means. From the on start of this process, the debtor and IP must act in utmost good faith and keep the creditors informed.

Debtor protection
The Insolvency Act 1986 governs the whole IVA process and clearly outlines the rights and obligations of each party. Although some creditors may challenge the process, for genuine and or selfish reasons, a debtor has the right to apply for an IVA if in his/ her analysis of his/ her financial situation he/she does not foresee any other option of paying off the debts without going bankrupt. Only two thirds of the creditors are required to approve the arrangement for it to proceed; subject to truthful disclosure of the debtor’s financial information to the IP. Once the plan goes through, the law prohibits any legal action and or harassment of the debtor by the creditors.

Creditor protection
In the same way the Insolvency Act 1986 protects debtors, it, also, protects creditors from debtors who might not make ample effort to honour their word. False or incomplete disclosure of financial information serves as a basis for the rejection and nullification of the arrangement, and this grants the creditors legal rights to pursue their debt recovery. An improvement of the financial position of the debtor, which can enable him/ her to make more contributions, towards payments of the debt, gives the creditors the right to have the arrangement revised, to favour them (creditors). Failure or inability of the debtor to make the payments leads to a nullification of the arrangement, and opens up ways of creditors to engage in severe debt recovery means.

Whereas Individual voluntary arrangements give debtors a less stressful option of getting out of debt, they do not protect them (debtors) from having their credit score getting affected negatively. This is, mainly because for a debtor to seek this option, he must have incurred debts, from defaulted payments, and the credit score already affected. Additionally, failure to honour the arrangement, also, gets reported to credit referencing agencies; ruining the debtor’s credit score further. A debtor can not continue with the arrangement alone, and has to engage the services of an IVA insolvency practitioner to preside over the creditors’ meetings and file the necessary legal papers.