So what is an IVA indeed and how does it work?

It is a legally binding arrangement between you and your creditors that ensures that if making regular monthly payments for a specified period of time, you can settle your debt, and become debt-free. These payments are agreed before the arrangement is made and are affordable and lower amounts than you used to pay before. Also, there are no additional fees or interest charges to be paid to your creditors. What’s more, an IVA is a formal arrangement according to which any outstanding debt is written off after you have successfully completed the prescribed period. Can you believe it?

Let’s move on to talk in brief about the process itself. The IVA process is protected by the government, so it’s totally legal. Being a legal agreement, it can only be set up by a certified Nominee, or the so-called Insolvency Practitioner. This person is an expert who will only recommend you an IVA if that’s the best possible choice for you. This Licensed Insolvency Practitioner is responsible for managing and supervising the whole IVA process: he assesses your suitability, taking into account your specific financial circumstances. He also has to monitor the progress of your debt repayment, as well as he has to check if the terms and conditions are being kept. You will have to pay the agreed amounts to him, and he will give these to your creditors. But don’t forget that if you fail in paying any of the monthly payments, your Individual Voluntary Arrangement is very likely to fail.

Let’s talk about the eligibility for an IVA, and the preparations that are needed before making the agreement. Your suitability depends on your specific case, and is not affected by your job, but generally speaking there are certain conditions that should be fulfilled. First, you must have more than £15,000 personal UK debt and at least three different creditors. If having a smaller debt, you might consider a Debt Management Plan. You also have to live in England, in Wales or in Northern Ireland. Don’t forget that for those living in Scotland there is a similar option called Trust Deed. The next condition is that you have to prove you will be able to pay the agreed amount each month until a specified date. This amount depends on your debt, but normally is around £200 in a month. So you must have a regular income in the one hand, but in the other hand you also have to be insolvent meaning that you should have difficulties paying your debt.

If you’re eligible for an IVA and the Insolvency specialist agrees that this is the best option for you, he or she makes up a ‘plan’ that states the new repayment amount. Trying to agree with you upon this, the Insolvency specialist will ask you some questions regarding your present financial situation, the assets you have and the possible future development of your finances. Your present finances refer mainly to your income minus your indispensable expenses, the sum representing the new amount you are going to pay monthly for the IVA.

And what’s next? After you accept this new repayment amount, the Insolvency Practitioner will provide the following information to your creditors: the proposal, the exact date, time and place of the Creditors’ Meeting where creditors will decide whether to accept or reject the IVA. The Nominee will also present a Statement of Affairs which is a list of the assets and the total debt of the debtor, a complete list of creditors, the fees charged by the Nominee in case of a successful IVA, as well as a paper for voting purposes. Then the so-called creditors’ meeting will be held but not earlier than 2 weeks after the creditors get the former information.

Let’s move on! The next step is the vote itself, namely the turn has come for the creditors to discuss if they can accept the IVA proposal or not. If the majority of the creditors vote (either personally or by proxy) for the IVA, then it will be accepted. Majority in this case means 75% in value of creditors voting for the proposal. Once 75% of creditors who vote agree with it, the IVA becomes legally binding on all the other creditors as well, even if they haven’t voted. And what is the case if only one creditor votes? If there is a single creditor who votes ‘for’ the IVA, then this is considered approved. However, if there is a single vote against the IVA, and this vote represents less than 25% of your total debt, the creditors’ meeting should be repeated at a later date.

As you probably see this voting process might be quite haggling as creditors can request some modifications or might have proposals, and the whole process depends on complex vote percentages. But fortunately it’s not your business to deal with it! In this negotiation process you are represented by the Insolvency Practitioner who will send a report to all of your creditors after the meeting. If the IVA is accepted this report will say that a legal contract was made. This contract states the repayment amount accepted by you beforehand and signed by the creditors as a result of accepting the IVA. There is also a possibility for getting an Interim Order made by the court that stops impatient creditors from taking any legal action against you.

Let’s take a look at the approval of the IVA! In other words, why will the creditors approve your Individual Voluntary Arrangement? This is quite simple: creditors will only accept it if it’s more advantageous (namely, if it provides a higher return) for them than if you filed for bankruptcy. You will also need to declare honestly all your assets, as well as your present and your anticipated future income. False declarations will most probably result in the failure of the IVA.

Basically this is all you have to do and understand. Although there might be several creditors’ meeting during an IVA process, you are never or rarely asked to attend these; you only need to be available by phone during these days. There is also a great chance that your financial situation will be re-examined during the period of your IVA to see if there are any changes. The supervisor of your IVA will send you and your creditors annual reports containing these reassessments. But that’s it! And although the process itself is not the easiest one, it is your insolvency practitioner’s duty to supervise it! The good news is that if you pay regularly, at the end of the IVA your debt will be written off! Go ahead and in five year’s time you are debt-free!