IVA Explained for Self Employed Individuals and Partnerships
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.
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.
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 progression of an IVA are approved up front 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.
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 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 during the recession.
More about IVA's
Do you need help?
Specialist advisors are available who can advise you on the most appropiate solution to bring you relief from debt