How Does an Insolvency Voluntary Arrangement or IVA Work? By Jensen Carlyle At Isnare.com Ezine Articles

An Insolvency Voluntary Arrangement, or IVA as it is frequently known, is one of the most popular debt management solutions in use in the UK today. An IVA falls far short of the cut-and-dried bankruptcy measure which liquidates all your assets and gives the proceeds to your creditors in order to eradicate your debts; instead and IVA simply arranges for a settlement, usually a much reduced monthly payment for a fixed period of time, typically 5 years.
Imagine you have £30,000 in debts and the monthly repayments are simply too much at around £850 per month. You can declare bankruptcy but then you will lose your home and quite possibly, your job. You contact an Insolvency Practitioner who is an authorised professional to arrange and administer IVA’s. they will prepare an initial statement and contact the various creditors you have and notify them that you are proposing an IVA as a way to deal with your financial debts.

An application is made to court on your behalf by the Insolvency Practitioner and a meeting of your creditors. There is then a vote on whether to accept the IVA proposals – only 75% of your creditors by value need approve the arrangement. When we say, “by value”, we mean that if 75% of the value of your debt votes in favour of the arrangement, it becomes approved – in our example, if one creditor is owed £23,000, i.e. more than 75% of your debts, then their approval is all that is required even though you have four other creditors owed smaller amounts.

Finally, court approval is required for the repayment arrangement and once this is obtained, you simply need to make the monthly payments for the payment period which has been agreed and you are then free and clear. It would not be unusual in the example we are providing, for repayments to be reduced to say, £250 to £300 per month (a significant reduction from £850 per month) and the repayment period is now fixed with an affordable monthly repayment.

Unlike bankruptcy, you do not lose your home and you are able to remain in it but in addition you can also maintain bank accounts and you have no period of supervision except that required to collect and distribute your monthly repayments for the period of the IVA. You also do not need to tell your employer that you have entered into an IVA and while some professions do require you to disclose the arrangement, the IVA will not preclude you from working unlike bankruptcy (for instance, to be a London Black Cab driver or a barrister, you cannot be an undischarged bankrupt).

A typical question is what happens if you lose your job during the repayment period? The answer is simple; you advise the Insolvency Practitioner who will arrange for a repayment holiday until you are back in work or if more serious, a re-arrangement of the settlement agreement. In practice, an IVA is extremely flexible, relatively simple and highly effective in ridding you of your debts without losing your home or job.

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