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Individual Voluntary Arrangement (IVA)

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An IVA is a formal arrangement that allows you to repay as much of your debt as you can afford, with the balance written off when completed successfully.

What is an Individual Voluntary Arrangement (IVA)?

An IVA is a detailed and legally binding payment proposal to repay your debts. Our IVA team drafts the proposal that is sent to your creditors for them to consider. The terms of the IVA depend on what you and your creditors are likely to agree.

Generally IVA’s are based on affordable monthly payments for a 5 or 6 year period. After this period any remaining debt included in the IVA will be written off by the creditors once all payments have been made. There is an IVA protocol that aims to make IVA’s fairer to both individuals and your creditors.

Is an IVA suitable for me?

An IVA could be appropriate for you if you are struggling to make the monthly payments that creditors expect. The most compelling benefit of an IVA is that you pay monthly affordable payments for a 5 or 6 year period with the unpaid balance being written off when the IVA is successfully completed. The starting point for working out whether an IVA is appropriate is working out what an “affordable” monthly payment would be and also how much you owe to your unsecured creditors. Examples of unsecured creditors whose debt can be included in an IVA are:

  • Credit cards and loans
  • Debts owed by you and someone else “jointly owed”
  • Monies owed to individuals including friends and family
  • Debts due to HMRC including overpaid benefits, self assessment tax, VAT
    Arrears of council tax and utilities
  • Trade creditors who supply you if you trade as self-employed
  • Shortfall once a property has been repossessed

Debts that cannot be included in an IVA include:

  • Matrimonial debt – monies owed to an ex-husband or wife that a court has decided should be paid
  • Student debt
  • Court fines or fines for traffic violations

Our debt calculator will help you work out how your “affordable” monthly payment compares with the amount creditors want.

For full debt advice and whether an IVA would be your best option, you can also speak to one of our advisors.

Can an IVA stop action by creditors?

Yes but it depends on the action and how far it is has gone. We can apply for an “interim order” which prevents creditors from starting or continuing action against you. This includes writs, judgments, charging orders, liability orders and petitions for bankruptcy. It is vital if you are facing action to get in touch immediately. If you leave it too late, we might not have enough time to help you obtain an interim order before the debt becomes charged on your property or you end up bankrupt.

If you are made bankrupt and you have assets that are risk of being sold by your Trustee in Bankruptcy, it is possible to propose an IVA and if this is agreed by your creditors, your bankruptcy can be canceled. You will need specialist debt advice on whether this is possible.

IVA’s – The benefits and the risks

Finding the right solution is only possible if a clear picture is available of the short term and long term advantages and disadvantages of an Individual Voluntary Arrangement. An IVA is aimed at getting your unsecured debts paid off in a manner that is affordable but it is a formal and legally binding solution. An IVA is not easy and requires discipline. The Advantages and Disadvantages explained below can help you decide if an IVA is right for you.

Benefits
  • You make affordable monthly payments usually for 5 or 6 years. (If you have a lump sum it is possible to offer a full and final IVA)
  • Unsecured debts remaining after an IVA is successfully completed are written off.
  • An IVA can protect your residential property.
  • An IVA prevents creditors from taking action or continuing from adding further interest or charges to their debt.
  • Protocol Compliant IVA’s give your Supervisor the power to allow payment breaks and extend the arrangement if there are missed payments.
Disadvantages
  • If there is significant equity in your residential property you may be asked to refinance in year 5.  Where it’s likely at the start of the IVA that this will not be possible, or after trying you are unable to you can extend the arrangement by 12 more months instead.  Where equity in the property is minimal (below £5,000) then no refinance or extension may be required.
  • Certain assets may not be protected such as windfalls, investment properties and savings
  • The IVA can fail if you do not adhere to the terms of the arrangement. Creditors will then pursue you for the balance and can even petition for your Bankruptcy if you owe them more than £5,000
  • An IVA requires creditors to vote on whether to accept, alter or reject the arrangement and any debts incurred after the date of approval cannot be included into the solution
  • An IVA means you have to live within an agreed budget for the period of the IVA and you cannot take on new credit without your Supervisor’s consent.
  • Any debt excluded from the IVA will remain outstanding.
  • Your credit rating will be affected for 6 years and details of your arrangement are added to the insolvency register.
IVA Process
Full & Final Settlement IVA
Insolvency Service Guide
Self Employed & Partnerships
IVA Protocol
R3 Standard T&Cs

The IVA Process

An IVA is a detailed payment proposal which is agreed by you and put to your creditors. The terms of the IVA depend on what you and your creditors are likely to agree. We have set out typical examples of how IVA’s are used to sort out debt problems.

An IVA is a detailed payment proposal which is agreed by you and put to your creditors.

The terms of the IVA depend on what you and your creditors are likely to agree. We have set out below typical examples of how IVA’s are used to sort out debt problems.

 

Type of Terms When would this be suitable?
60 affordable monthly contributions You live in rented accommodation or you have little equity in your property
60 affordable monthly contributions plus extra sum paid at the end of IVA in lieu of equity in residential property or 12 extra contributions if you cannot raise an extra sum You have an interest in your property which after deducting 15% from the value of your property and your secured debt, the balance is £5,000 or higher.
6 – 12 month IVA offering lump sum You cannot afford to make monthly contributions but there are friends, family, etc who can introduce a lump sum
Proposal which offers lump sum and contributions You are likely to retire in 2 to 3 years and can pay contributions prior to retirement but then can introduce a lump sum from your pension
Proposals which offers contributions plus funds from the sale of an asset You are self employed and are able to sell an asset, introduce the funds and pay contributions for a period.

As you can see an IVA could suit your circumstances. There are likely to be other options as well such as Debt Management, Bankruptcy, Debt Relief Order, Consolidation through refinancing and Dealing Directly with your creditors.

It is important that a detailed review is undertaken and that the advice given is independent. The Debt Advisor is regulated by The Financial Conduct Authority for debt counselling As such we are appropriately regulated to offer advice on both formal and informal solutions.

Once it has been agreed that an IVA is the most suitable solution for you, your offer is detailed in a document called proposals. The proposals set out in detail the following:-

  • Background information and how your situation arose
  • Your assets including your residential property, cars, etc
  • Your secured Debts (mortgage, secured loans, Higher Purchase)
  • Your unsecured debts (credit cards, loans, tax debts, etc)
  • Your proposals to creditors. For example 60 monthly contributions of an affordable sum.
  • How your IVA is to be supervised and your obligations
  • What happens if you cannot keep to the terms
  • The fees to be charged
  • How much creditors are likely to be paid

If your assets are at risk because of action taken by creditors, we can apply to court for an Interim Order. This means that creditors cannot commence or continue with any action against you and your assets unless the court permits them to do so.

A meeting is then held with your creditors where they are able to vote on whether to accept, alter or reject your proposals – 75% of creditors must agree to the proposal in order for the IVA to go-ahead. As long as your proposal demonstrates a genuine desire to repay as much of your debt as you can afford, it is likely that creditors will accept your IVA. It is our role to guide you on what creditors will find acceptable.

Once your IVA is approved all interest and charges on your unsecured debt is frozen. If creditors accept that you can only repay a proportion of your debt, the balance of your debt will be written off as long as you keep to the terms of your agreement. You will need to justify expenditure that exceeds these guidelines.

Our case studies provide a number of real-life examples of how we have used the IVA procedure to assist customers with serious levels of debt. For more information on the detail please visit the FAQ section of this site which details important questions on all appropriate debt solutions.

You may also wish to visit our Debt Calculator page to assess your current financial situation.

Important Information

All debt solutions should be very carefully considered. Our team will provide you with the most appropriate advice taking into account your circumstances. There are a range of options which include IVA, Debt Management, Bankruptcy, Debt Relief Order, Debt Consolidation through refinancing and Dealing Direct with your Creditors all of which are covered on this site.

Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. You have the right to a cooling-off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term. Calls to our free phone number from mobile phones and other networks may be charged.

The Insolvency Service website has helpful information on https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty.

The Debt Advisor Ltd is regulated by The Financial Conduct Authority. This means we are able to offer debt advice and deliver both formal and informal solutions. IVA’s do need to be carefully considered and you must take independent debt advice. Your credit rating will be affected for up to 6 years after the IVA is approved. Please be aware that all IVA’s come with a fee and a breakdown of these fees will be clearly explained to you before entering into the solution. We hope that the information and debt advice on this site including Frequently Asked Questions, will help inform you.

A full and final settlement IVA is a legally binding arrangement with your creditors that 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 although we would recommend you only consider Equity Release Schemes after taking advice from FCA regulated pension advisor.

Full and Final Settlement IVA Example

Anthony had amassed £76,586 of debt having gone through a tough divorce. He had been made redundant from a well paid job and after settling his solicitors’ costs, he had £11,000 remaining. Anthony was looking to set up as a business consultant and at the time his income was erratic.

The TDA team helped put together an IVA proposal which offered £11,000 to settle his debts. Anthony also agreed that if he was entitled to any compensation from mis-sold PPI this would also come into the IVA.

  Bankruptcy IVA
Income Contributions Nil Nil
Balance of Redundancy Funds £11,000 £11,000
Estimated total Costs  £11,000+  £2,265
Dividend to Creditors Nil  12.17p

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. Or alternatively, the settlement comes from a third party and this money would not be available in bankruptcy. Read our case studies for examples of how IVA’s have been used to deal with problem debt.

Creditors are likely to accept your full and final settlement if we can demonstrate that this offers a better return than bankruptcy. Also for people who have reached retirement age, it is possible to retain much of your equity and offer a lump sum (raised either from 3rd parties, or equity release or pension release) to settle your debts.

The process is much the same as for a normal IVA but usually last for 12 months or less.  If your assets are at risk because of action taken by creditors, we can apply to court for an Interim Order, which means that creditors cannot commence or continue with any action against you and your assets unless the Court permits them to do so.

A meeting of your creditors is held and creditors are able to vote on whether to accept, alter or reject your proposals. As long as you proposals demonstrate a genuine desire to repay as much of your debt as you can afford, it is likely that creditors will accept your IVA. It is our role to guide you on what creditors will find acceptable.

Once your IVA is approved all interest and charges on your unsecured debt is frozen. Also due to the fact that an IVA allows you to repay a proportion of your debt, then as long as you adhere to the agreed terms, the remaining balance of your debt will be written off.
Any charges for progression of an IVA are approved up front with yourself and your creditors. It’s vital that you can achieve the proposed terms as failure to do so is likely to mean your IVA will fail.

A failed IVA usually means that you are once again liable for the debt not settle by the IVA. Generally creditors do not want the Supervisor to petition for your bankruptcy but if you have HMR & C as a creditor they generally request the Supervisor petitions for your bankruptcy if the arrangement fails.

Fees payable for a Full and Final IVA

It takes around 6 – 8 weeks to set up an IVA. If you are offering a full and final settlement, it is likely that we will require that our Nominee’s fee is paid during this 6 – 8 week period. If your IVA terms are not approved, the Nominee’s fee is not refunded.  It is not in our interests to take a fee from you unless we are very confident your IVA terms will be accepted. If there is a danger creditors may not agree the terms, you will be advised of this in writing and we will want to you confirm in writing  if you want us to continue to help you put forward full and final terms for an IVA.

The Nominee’s fee will vary depending on the complexity of the IVA but typically are between £1,000 and £2,000 and as mentioned above, this is paid prior to approval of the IVA. The Supervisory fees are normally capped by creditors at between 15 and 20% of realisations.  The fees will be taken from the full and final sum and the balance will be distributed to creditors. All fees will be discussed in detail with you prior to any plan being put in place.

Effect on your credit Rating

An IVA will be on your credit record for six years which is the same length of time that any other adverse credit is recorded.

The next step

All debt solutions should be very carefully considered. Our team will provide you with the most appropriate advice taking into account your circumstances. There are a range of options which include IVADebt ManagementBankruptcyDebt Relief Order all of which are covered on this site.

The Insolvency Service website has helpful information on https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty.

Important Information

All debt solutions should be very carefully considered. Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. You have the right to a cooling off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term. Calls to our free phone number from mobile phones and other networks may be charged.

Is an IVA suitable for me?

An IVA could be appropriate for you if you are struggling to make the monthly payments that creditors expect. The most compelling benefit of an IVA is that you pay monthly affordable payments for a 5 or 6 year period with the unpaid balance being written off when the IVA is successfully completed. The starting point for working out whether an IVA is appropriate is working out an “affordable” monthly payment would be and also how much you owe to your unsecured creditors.

Examples of unsecured creditors whose debt can be included in an IVA are:

  • Credit cards and loans
  • Debts owed by you and someone else “jointly owed”
  • Monies owed to individuals including friends and family
  • Debts due to HMR & C including overpaid benefits, self assessment tax, VAT
    Arrears of council tax and utilities
  • Trade creditors who supply you if you trade as self-employed
  • Shortfall once a property has been repossessed

Debts that cannot be included in an IVA include:

  • Matrimonial debt – monies owed to an ex-husband or wife that a court has decided should be paid
  • Student debt
  • Court fines or fines for traffic violations

Our debt calculator will help you work out how your “affordable” monthly payment compares with the amount creditors want.

For full debt advice and whether an IVA would be your best option, you can also speak to one of our advisors.

Can an IVA stop action by creditors?

Yes but it depends on the action and how far it is has gone. We can apply for an “interim order” which prevents creditors from starting or continuing action against you. This includes writs, judgments, charging orders, liability orders and petitions for bankruptcy. It is vital if you are facing action to get in touch immediately. If you leave it too late, we might not have enough time to help you obtain an interim order before the debt becomes charged on your property or you end up bankrupt.

If you are made bankrupt and you have assets that are risk of being sold by your Trustee in Bankruptcy, it is possible to propose an IVA and if this is agreed by your creditors, your bankruptcy can be canceled. You will need specialist debt advice on whether this is possible.

IVA’s – The benefits and the risks

Finding the right solution is only possible if a clear picture is available of the short term and long term advantages and disadvantages of an Individual Voluntary Arrangement. An IVA is aimed at getting your unsecured debts paid off in a manner that is affordable but it is a formal and legally binding solution. An IVA is not easy and requires discipline. The Advantages and Disadvantages explained below can help you decide if an IVA is right for you.

The Insolvency Service website has helpful information.

The Insolvency Service website has helpful information  https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty.

 

Operating a self employed business is stressful especially if you have debt problems.

Debts can accumulate for a range of reasons; bad debts, lost contracts, or just poor financial control. The debts may be a combination of business and personal, as often personal loans and credit card debt is accrued trying to support the business. Voluntary Arrangements can be used in a number of ways, which are explained below:

Arrangements based on contributions

The most common IVA involves the trader retaining his or her business assets but instead offering to pay monthly contributions out of future earnings over a fixed period of time, usually 5 years. Where there is a personal property with equity, creditors will expect that a sum is introduced at the end of the arrangement in place of a share of the trader’s equity.

Partners can propose interlocking IVA’s which essentially provide for the partners to make one monthly contribution to settle all debts irrespective of whether the debts are in either partner’s name or owed jointly.

Arrangements based on a full and final Settlement

Generally these type of arrangements offer creditors a lump sum to settle their debts.

For example:-

Helen is a publican and has around £40,000 of debt consisting of Inland Revenue Self Assessment tax, loans and credit cards. She has a property which she has rented out and will generate around £25,000 if sold. She has built up the trade at the pub which is now trading profitably. The pub income can cover future trading expenses but is insufficient to cover debt repayments.

Solution

A full and final IVA offering creditors a lump sum of £25,000 to settle debts of £40,000. After costs creditors would receive around 50p in the £.

Partnership Voluntary Arrangements “PVA’S”

A partnership that cannot meet its debts can put forward payment proposals on behalf of all it’s partners to repay debts owed by the partnership business. The proposals can be based on the following:-

  •  Contributions only or
  • A lump sum settlement or
  • A combination of contributions and assets realisations.

A PVA is particularly appropriate for partnerships with a large number of partners. The personal assets of the partners are usually excluded and as long as the repayment proposals to creditors are acceptable, it could mean that personal assets do not need to be realised. Depending on the Partnership Deed, it is likely that unanimous approval of all partners is required.

Unlike an Individual Voluntary Arrangement there is no interim order to protect the partnership from creditors taking action. The partnership may have to consider applying for a Partnership Administration Order to gain the necessary protection. This is a court led procedure which is appropriate for trading partnerships where it is appropriate to salvage the business and protection is needed from creditor action.

There are other options for partnerships including debt consolidation and bankruptcy. Do give us a call, we will be pleased to explain IVAs and advise on all relevant solutions.

Any charges for the progression of an IVA are approved upfront with yourself and your creditors. Missed payments can bring your IVA to an end and could result in bankruptcy. Your home is at risk if your IVA fails.

How do IVA Fees get paid?

As soon as you decide to proceed with an IVA then your payments to creditors cease and contributions towards your IVA start. These will be set at a figure which you have agreed you can afford.

It takes around 6 – 8 weeks to set up an IVA and during this period you will commence your monthly contributions into your IVA.  It is likely that by the time the IVA is approved, you will have made one to two contributions which will be used as part payment of the Nominees fees.

(If creditors reject the IVA proposals we do not seek to recover the balance of the Nominee’s fee from you). The Nominee’s fee will vary depending on the complexity of the IVA but typically are between £1,000 and £3,500 for more complex cases. With IVA full and final settlements we will require that the Nominee’s fee is paid before the IVA is approved.

The Supervisory fees are normally capped by creditors at between 15 and 20% of realisations.  The Supervisory fees are drawn monthly from the monthly contributions or with full and final settlements, from the lump sum. All fees will be discussed in detail with you prior to any plan being put in place.

Does an IVA effect my credit rating?

An IVA will be on your credit record for six years which is the same length of time that any other adverse credit is recorded.

Important Information

All debt solutions should be very carefully considered. Our team will provide you with the most appropriate advice taking into account your circumstances. There are a range of options which include IVADebt ManagementBankruptcyDebt Relief Order all of which are covered on this site.

Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. You have the right to a cooling off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term.

The protocol aimed to simplify the IVA process, but particularly to help make the process as fair as possible for both consumers and creditors.

The protocol terms and standard conditions are reviewed by an independent committee, The IVA Standing Committee who ensure that Protocol Compliant IVA’s remain fair and workable.

The Debt Advisor uses the Protocol terms for consumer IVA’s. We also use protocol terms for IVA’s for self-employed however, generally, these IVA’s are not protocol compliant.

 

Guidance to support the IVA protocol

To view the R3 standard Terms and Conditions, please click here.