| With levels of consumer debt in the UK now | | | | They should also not have any material assets |
| exceeding £1 trillion it is of perhaps no | | | | that could be used to pay off the debt. The |
| surprise that more and more people are facing | | | | first stage of the IVA sees a proposal being |
| up to major financial difficulties. When a | | | | made to all of the creditors. For the IVA to |
| person finds that they can no longer keep up | | | | progress at least seventy five percent of the |
| with their debt repayments one possible | | | | creditors must agree to it. |
| solution is an Individual Voluntary | | | | |
| Arrangement (IVA). | | | | Benefits and Drawbacks |
| | | | |
| Individual Voluntary Arrangements were | | | | Individual Voluntary Arrangements are |
| introduced by the UK government as part of | | | | advantageous to both debtors and creditors |
| the Insolvency Act 1986. They were designed | | | | when compared to other debt solutions |
| to provide a viable alternative to bankruptcy | | | | including bankruptcy and debt management |
| for individuals and small businesses. The | | | | plans. Entering into an IVA offers a number |
| government was concerned that in many cases | | | | of benefits. As the IVA is a formal |
| bankruptcy can be a counter productive step | | | | arrangement you are protected from legal |
| in which both debtors and creditors lose out. | | | | action and given a guarantee that the terms |
| The purpose of IVAs was to provide a better | | | | of the IVA will be adhered to. Firstly during |
| solution for all parties. | | | | the IVA all interest being charged on the |
| | | | debt is stopped as are all legal proceedings |
| How does an IVA work? | | | | including petitions for bankruptcy. |
| | | | Additionally at the end of the IVA any |
| An Individual Voluntary Arrangement is a | | | | remaining unpaid debt is written off leaving |
| formal agreement which allows a person to | | | | the individual free of debt. With an IVA it |
| clear their debts in a fixed period of time. | | | | is possible that as much as two thirds of the |
| A person entering into an IVA has their debts | | | | original debt will be written off. |
| consolidated into a single regular monthly | | | | |
| repayment. Typically repayments will be made | | | | An IVA however is not suitable in all |
| for a period of five years however there is a | | | | circumstances and in pure financial terms a |
| degree of flexibility in this. The actual | | | | debtor without assets or significant income |
| IVA agreement will vary from case to case | | | | would be better off applying for bankruptcy. |
| according to a number of factors including | | | | After the new Law on bankruptcy was passed |
| income, expenditure, size of the unsecured | | | | under The Enterprise Act a first time |
| debt and the number of creditors. These | | | | bankruptcy now only lasts for one year with a |
| factors are used are used to decide the | | | | repayment period of 12 months to 36 months. |
| length of the IVA and the size of the | | | | In an IVA the repayment period lasts normally |
| repayments. The amount of the IVA repayment | | | | for 60 months so the debtor is committing to |
| will be based on what the individual can | | | | repay for a longer period than would be the |
| reasonably afford on their current income. | | | | case in bankruptcy. Obviously many people |
| Legally only a Licensed Insolvency | | | | will opt for an IVA to avoid the social |
| Practitioner is authorised to prepare and | | | | stigma of bankruptcy, however if the IVA |
| manage an IVA. | | | | creditors refuse to accept the proposed IVA |
| | | | then the debtor should look seriously at |
| Qualifying Criteria | | | | bankruptcy. |
| | | | |
| Although Individual Voluntary Arrangements | | | | If you are having problems with debt then the |
| offer a large degree of flexibility they are | | | | first thing you should do is to speak to an |
| not suitable for all situations and type of | | | | independent debt advisor. There are many |
| debt. For an IVA to be suitable certain | | | | organisations that are able to discuss your |
| qualifying criteria will usually need to be | | | | debt problems with you and suggest the best |
| met. To qualify for a person generally must | | | | way to overcome them. In most cases this |
| have unsecured debts in excess of £15000. | | | | advice will be offered free of charge. |
| In addition to give the greatest chance of | | | | Although they provide a good solution to debt |
| the IVA being accepted it is expected that | | | | problems Individual Voluntary Arrangements |
| the debts will be divided between more than | | | | aren't suitable for everyone and so it |
| one creditor. It is also required that the | | | | important to get impartial advice before |
| person is in employment and so has a regular | | | | making a commitment. |
| income from which to make the repayments. | | | | |