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An Individual Voluntary Arrangements
(IVAs) are a formal alternative for
individuals wishing to avoid bankruptcy in
England. In Scotland there is a similar
procedure to the Individual Voluntary
Arrangement called a Protected Trust Deed (PTD).
The Trust Deed, although similar to the
Individual Voluntary Arrangement in many
ways, lasts only for 3 years as opposed to
the normal 5 year period that constitutes
the vast majority of IVAs. Trust Deeds are
an alternative to bankruptcy in Scotland
which is referred to as Sequestration.
The IVA was established by the Insolvency
Act 1986 and constitutes a formal repayment
proposal presented to a debtor's creditors
via an Insolvency Practitioner. Usually (but
not necessarily) the IVA compromises only
the claims of unsecured creditors, leaving
the rights of secured creditors largely
unchanged. An IVA is a contractual
arrangement with creditors and can be as
flexible as an individual's own
circumstances; they can therefore be based
on capital, income, third party payments or
a combination of these.
Creditors take a decision at a creditors'
meeting called to consider the IVA proposal.
The return to creditors is often higher than
they would receive in bankruptcy. A vote is
taken - by value. More than 75% in value of
those creditors who vote at the meeting by
person or by proxy must agree in order for
the arrangement to be approved. If any of
those voting are 'associates' (usually
business associates, friends and family)
then a second count is taken and 50% of
non-associated creditors must approve it.
An IVA is an alternative to bankruptcy,
however they are not mutually exclusive. A
person can propose an IVA after they have
been made bankrupt. If an arrangement is
approved post-bankruptcy then the debtor can
apply to the Court for an annulment of the
bankruptcy order - such IVA's can only be
proposed whilst the bankrupt is
undischarged. If an IVA is proposed after a
bankruptcy order has been made, it is now
also possible to nominate the Official
Receiver to be the supervisor of the
arrangement. The Arrangements offered by the
Official Receiver are very restricted and
have not proved very popular. This type of
arrangement is called a Fast Track Voluntary
Arrangement and is only suitable in certain
cases. For more help on IVA frequently asked
questions click here.
Advantages and Disadvantages of an IVA
compared to Bankruptcy
The advantages and disadvantages of an IVA
compared with other debt solutions are
particular to a debtor's individual
circumstances and professional advice should
be sought to decide on the best option.
- Stigma
An IVA is a private agreement between a
debtor and creditors. Bankruptcy is
advertised in a local newspaper and the
London Gazette, an IVA is not. Both
debtors in an IVA and bankrupts are
listed publicly on the Personal
Insolvency Register
www.insolvency.gov.uk, and will be
recorded by credit reference agencies.
- Length
An income based IVA can often last up to
5 years, although it can be any length.
A bankrupt is normally automatically
discharged after just 1 year (unless
subject to a Bankruptcy Restriction
Order) or benefiting from an early
discharge. An Income Payments Agreement
or Order in bankruptcy is will not last
for more than three years and payments
are generally much lower than under an
income based IVA.
- Credit
Unlike Bankruptcy, an IVA does not
statutorily restrict a debtor from
obtaining credit, although the proposal
might do.
- Ability to Trade
Bankruptcy will usually dissolve a
partnership and prevent a debtor from
acting as a director of a company. A
self-employed trader will have to
disclose the fact that he or she is
bankrupt when obtaining credit, for
example when dealing with suppliers.
There are no such implications with an
IVA, although lenders often ask.
- Credit Rating
Although arguably an IVA is seen as more
positive than bankruptcy in the eyes of
creditors, as it shows a certain
commitment to repaying debt, in reality
an IVA is likely to have an equally
detrimental effect on a debtor's credit
rating as bankruptcy. Usually a debtor's
credit rating is already poor before an
IVA or bankruptcy is considered however.
Both bankruptcy and an IVA will stay on
a debtor's credit file for 6 years from
the start of the IVA/bankruptcy.
- Fees
An IVA is usually less expensive than
bankruptcy as the Insolvency
Practitioner need not deposit funds in
the Insolvency Services Account as is
the case in a bankruptcy - here the
Government levies an ad valorem charge
of 17% on all deposits after the first
£2,000.
- Protection
A major advantage of an IVA over debt
management arrangements is that all
unsecured creditors are bound by it once
it has been agreed: even if they did not
agree to the IVA at the meeting of
creditors. As only those creditors who
vote at the meeting are counted, those
creditors who did not vote at all are
still bound by the decision, as are
those who voted against it if they are
outvoted (see above). Creditors bound by
the IVA cannot take enforcement action
to recover the debt, but instead submit
a claim in the IVA and are paid by the
Supervisor.
- The Home
Perhaps the biggest advantage to an IVA
over Bankruptcy is the control the
debtor has over their home. In
bankruptcy, the debtor's assets will
vest in the Trustee (some assets are
excluded, notably those used as tools of
trade, ordinary household contents and a
modest motor vehicle). This will usually
include equity in their property and the
Trustee may force its sale. An IVA
proposal may exclude the property
altogether, propose a re-mortgage or
offer income based contributions for a
longer period in lieu of the debtor's
equitable interest in the property. The
Supervisor may register a restriction on
the property to ensure that his or her
consent is required before the property
is, for example, sold or re-mortgaged.
To get a more information , about
Individual Voluntary Arrangements (IVAs)
, from our specialist Debt Solution partners
please complete one of our simple
online "IVA
Enquiry" or "Debt
Solution Callback
Request" forms which asks for some very
basic information to help them assess your
needs. Alternatively please either use the "Contact us"
link below to send us a quick email or
look at our
Debt Links page which may have
alternative "Finance Solution"
providers. IVA Frequently
Asked Questions
source Guide to
Bankruptcy www.insolvency.gov.uk
- How does an IVA work?
First, find an authorised insolvency
practitioner prepared to act for you as
supervisor of the arrangement. (Your
local court can give the names of local
practitioners.) A list is also available
for you to look at in your local
Official Receiver’s office. If you are
already bankrupt then the Official
Receiver may be able to act as the
supervisor of an arrangement. Then you
may apply to the court for an “interim
order”. This prevents your creditors
from presenting, or proceeding with, a
bankruptcy petition against you while
the interim order is in force. It also
prevents them from taking other action
against you during the same period
without the permission of the court. You
do not have to apply for an interim
order to put a proposal for a voluntary
arrangement to your creditors. The
insolvency practitioner tells the court
the details of your proposal and whether
in his or her opinion a meeting of
creditors should be called to consider
it. If a meeting is to be held, the date
of the meeting and details of the
proposals are sent to your creditors.
Where the creditors’ meeting approves
your proposal this will bind every
creditor who received, or who was
entitled to receive, notice of the
meeting. At the meeting, the creditors
vote on whether to accept your
proposals. If enough creditors (over 75%
in value of the creditors present in
person or by proxy, and voting on the
resolution) vote in favour, the
proposals are accepted. They are then
binding on all creditors who had notice,
or were entitled to receive notice, of
the meeting. The insolvency practitioner
supervises the arrangement and pays the
creditors in accordance with the
accepted proposal.
- What will an individual voluntary
arrangement cost?
You should ask several practitioners
what they charge before you ask any of
them to act for you. Insolvency
practitioners are usually accountants,
some are solicitors and their fees are
similar to those charged by members of
these professions for other kinds of
work.
- What is a full and final
settlement IVA?
A Full and Final
settlement IVA is a legally binding
arrangement with your creditors which
allows you to repay a proportion of your
debt in a one off lump sum payment.
Normally the lump sum is raised by
remortgaging your property or
introducing a lump sum from relatives.
For individuals over retirement age, an
equity release scheme may be possible.
This is an ideal solution for
individuals who are able to raise a sum
of money, but after providing for their
reasonable costs of living including
their increased mortgage payment, do not
have any surplus income. Creditors are
likely to accept your full and final
settlement if we can demonstrate that
this offers a better return than
bankruptcy. The initial requirements to
enter into an Full and Final settlement
IVA are 1) you are in financial
difficulty, 2) you owe at least 3 or
more creditors, 3) you have unsecured
debts / loans in excess of £10,000 and
4) you provide a lump sum payment of at
least £10,000.
- When can you make an individual
voluntary arrangement?
It is better and cheaper for you to set
up an individual voluntary arrangement
before you become bankrupt but you can
propose one afterwards. If you do
propose an individual voluntary
arrangement after bankruptcy, it is
possible for you to nominate the
Official Receiver to be the supervisor
of the arrangement. This type of
arrangement is called a fast-track
voluntary arrangement and is only
suitable in certain cases (a separate
publication called “Fast-track voluntary
arrangements” is available from your
local Official Receiver’s office).
- Are there any restrictions?
Generally speaking no, but the court
cannot make an interim order if you have
applied for one in the previous 12
months. There is no maximum or minimum
level of debt and no maximum or minimum
level of repayments, except what is
acceptable to your creditors. An
arrangement might particularly suit you
if you have friends or relatives
prepared to help pay or contribute
towards paying your debts;
your income enables you to pay regular
sums to creditors.
- What are the advantages of an
individual voluntary arrangement
compared to going bankrupt?
It gives you more say in how your assets
are dealt with and how payments are made
to creditors. You may be able to
persuade your creditors to allow you to
retain certain assets (such as your
home). You will obviously have to act
responsibly and flexibly in order to
reach agreement with your creditors. You
avoid the restrictions which apply to a
bankrupt. Because you will not have to
pay some of the fees and expenses which
are charged in a bankruptcy, the overall
costs are likely to be less.
- Can an individual voluntary
arrangement be proposed by a member of a
partnership?
Yes. You can propose an individual
voluntary arrangement on your own which
must take into account the claims that
the creditors of the partnership have
against you personally. It will not
affect the rights of the partnership
creditors to take action against the
partnership itself or against any other
partner. Alternatively, you and your
partner(s) may wish to propose an
arrangement involving the partnership
creditors and the personal creditors of
the partners.
Warning: If you enter a voluntary
arrangement but fail to give full
details of your assets and debts or fail
to do what you have agreed under the
arrangement, then the insolvency
practitioner, or any creditor bound by
it, may still petition for your
bankruptcy. |
