IVAs – Are They Really A Government Debt Scheme?
A lot of people ask us is an IVA a legitimate debt solution? Well to put minds at rest, here is some information below to clarify;
An individual voluntary arrangement (IVA) is a formal alternative, which is used by individuals to avoid bankruptcy.
The IVA was both established and governed by Part VIII of the Insolvency Act of 1986, and is presented to the creditors of the debtor via an insolvency practitioner, as a formal repayment proposal. The IVA usually comprises only claims from unsecured creditors, but not necessarily in all cases. The rights of secured creditors remain unchanged to a large extent. In addition to the debt, there are initial and ongoing fees charged by insolvency practitioners.
More on the history of Individual Voluntary Arrangements here.
This IVA is a contractual arrangement with creditors, that can be flexible in the same way that an individual’s circumstances may be. The base of an IVA can be capital, third party payments, income or any combination of these.
After priority creditors and necessary expenses, a debtor can arrange an individual voluntary arrangement in this process, if sufficient money remains. In the case where serious problems exist, debtors may wish to consider a debt management plan after taking independent advice.
The IVA proposal is discussed at a creditors’ meeting, called for creditors to take a decision. The return that is given to creditors is often higher, than what would have been received in the case of bankruptcy. A vote is taken based on value. For there to be approval of the arrangement, at least 75% in value of the creditors who vote at the meeting, whether in person or by proxy must agree. If any of the persons voting are in fact ‘associates’, such as friends, family or business associates, then there must be a second count. During this count, 50% of the non-associated creditors must give approval.
The original purpose of IVAs was to provide relief, to the debts that resulted due to business insolvency. Recently with the increasing levels of consumer debt, there have been many insolvent individuals who have non-business generated debts, and require the legal protection available within an IVA. People with large amounts of assets which they wish to protect, may express the most interest in IVAs. These types of assets include expensive cars and high-equity cars for example, and are not directly at risk under an IVA, as may be the case in a bankruptcy.