IVA - Insolvency Practioners Can Help you Create an IVA

Many consumers who are overwhelmed with debt are pleasantly surprised to find that there are alternatives to bankruptcy. With the help of insolvency practioners, many consumers are able to avoid bankruptcy by using an IVA (Individual Voluntary Arrangement).

What are IVAs?

IVAs are a financial vehicle that allows a consumer to get out of debt without declaring bankruptcy and without paying off all of their debts. In most cases, these arrangements are created by an insolvency practioner who crafts a repayment plan based on the debtor's income and how much they owe to each creditor. Each arrangement varies based on the individual's unique circumstances.

In most cases, the debtor will continue to own almost everything that they bought with a secured instalment loan. Because the debtor has not relinquished their property, they will normally continue to make those payments as per the original agreement. Things purchased with instalment loans often include homes and cars among other things.

The biggest changes are usually made to the debtor's revolving debts or unsecured debts. The most common example of revolving debt or unsecured debt is a credit card or an unsecured line of credit. To help the consumer pay off these debts, the insolvency practioners will work with the creditors to lower the interest rates, eliminate fees, and lower the monthly payments.

What is the Legal Process?

IVAs are finalized at a proposal meeting. The proposal that is drafted by the insolvency practioner must be approved by at least 50% of the creditors. If some of the creditors are related to the debtor, there will be two votes at the proposal meeting. During one vote, the relatives will be excluded, and at least 50% of the other creditors must agree to the arrangement. Typically, creditors are willing to approve these arrangements because they get more money than they would have if the debtor declared bankruptcy.

History of IVAs

IVAs were created by the Insolvency Act of 1986. Originally, they were intended to be used by business owners who had gone under due to overwhelming debts. For years, business owners were the people most likely to utilize this option. However, this trend has shifted in recent years due to the high amount of consumer debt. Every year, an increasing number of consumers take advantage of this option so that they can avoid bankruptcy.

Pros and Cons

There are advantages and disadvantages to using this alternative to bankruptcy, and whether or not a consumer opts to get one will depend largely on their personal circumstances and their long term financial objectives.

There is a certain amount of stigma attached to this type of arrangement, and these arrangements are reported to the credit reference agencies. Although IVAs leave a negative mark on a consumer's credit file, most consumers feel like this is better than having a bankruptcy reported on their file.

One of the biggest advantages of having a voluntary arrangement over a bankruptcy is that the debtor is allowed to keep their house through the arrangement. In contrast, many people who declare bankruptcy are not able to keep their home, and they may be forced to sell so that they can liquidate their equity in order to settle some of their debts. Consumers who declare bankruptcy are usually only allowed to keep their personal possession or the objects that they need for their trade. Consumers who use IVAs in contrast often get to keep their homes and cars in addition to their personal property.

What Happens if The Consumer Does not Keep Their Arrangement?

If the consumer cannot keep up with their monthly payments, the arrangement will be considered a failure. At that time, the consumer will be forced into bankruptcy procedures. At that time, the creditors will add interest to the debts. The interest will be back dated to include the entire time from the proposal meeting to the failure date. Typically, interest is added at a rate of 8%, and in many cases, this can mean that the consumer is in more debt than when they started the arrangement.