Debt issues: Welcome to IVA UK

When asking prospective clients in the UK if they have
ever been in an IVA the most common response I get is
'what's an IVA?'

20 years ago in 1986 the insolvency act introduced the
IVA. IVA stands for Individual Voluntary Arrangement
A formal, it is court ratified, process that allows somebody
struggling with unsecured debts to make a payment
proposal to their creditors.

IVA numbers are increasing dramatically at the time of
writing. A record number of people in England and Wales
went insolvent between July and September 2006.
The Insolvency Service said 27,644 people went bankrupt
or entered into Individual Voluntary Arrangements to
manage their debts.

Why are IVA's proving to be 'popular'?
Creditors like them because it can often provide greater
returns than would normally be realised if the debtor went
bankrupt. Debtors like to make use of an IVA because it
freezes interest on debts, it makes the payments more
manageable, it protects their home, it is a very discreet
debt solution (unlike bankruptcy) and allows company
directors to retain their position.
After a period of normally 60 monthly payments, any
outstanding amounts of unsecured debts included in the
IVA are written off.

That sounds great, how do I organise an IVA?
Well initially your unsecured debts need to be in excess
of £15,000. If you have more than £15,000 of unsecured
debts and are struggling with debt repayments then it's
time to talk to a professional.
Only qualified professionals can administer an IVA.
This is usually an insolvency practitioner but there are
a number of firms that have sprung up to effectively
'package' an IVA ready for the insolvency practitioners
to complete the IVA. The insolvency practitioner then
becomes the trustee for the IVA.
To get an IVA agreed, a clear statement of your
financial position will need to be drawn up. This will
include all assets (house(s), cars, endowment policies,
cash plans, pension details, etc) and then details of
your monthly income and expenditure. All these details
are put to your creditors along with a proposed
monthly payment.

What about my house?
Importantly, if you own your own home, then any equity
you have available in the property will form part of the
IVA proposal as part of the repayment offer. A secured
charge is applied to your property equivalent to the
proposal put to the creditors. The charge is normally
applied to your property during the first year of the IVA
and normally realised in the fourth year of the IVA.
If the property is jointly owned then only the debtors
share of equity is normally considered under the IVA.

So what happens when the creditors vote on my IVA?
The creditors vote on whether to accept the IVA proposal
or not. If more than 75% by value of unsecured creditors
vote in favour of the IVA then it has to be accepted by all
the unsecured creditors.

What do you mean more than 75% by value?
Well if you have 4 creditors but say one of them is owed
76% of your total amount of unsecured debts then it is
only their vote that counts. If they accept the IVA proposal
then the others will have to accept payments. Equally,
if the 76% creditor declines the IVA proposal then the
whole proposal has been rejected.

What happens if my IVA is rejected?
Well first thing, remain calm. There is an opportunity to
submit an improved IVA proposal if your funds allow.
Failing that it may be time to consider an informal
payment plan or perhaps even bankruptcy. This is best
discussed with a debt help and advice professional.

What if I miss any of my IVA payments?
A well drawn up IVA will allow for one or two missed
payments in the IVA but missing payments is a serious
business. The IVA is a court ratified agreement. Missing
payments in an IVA runs the real risk that the trustee
will legally have to force you into bankruptcy.

What happens to the IVA if my circumstances alter?
If your circumstances alter then this needs to be reflected
in your IVA. That means should your income fall then the
repayments should also be reduced. Equally, where your
income improves then more money will be made available
each month to your creditors.

Well I made it to the end of my IVA, what now?
The trustee will issue a 'Statement of Completion'
normally within 3 months of the last payment of the
IVA. The trustee will also notify the Insolvency Service
and reflect this in their records.

Finally, do be aware and get proper IVA advice.
Do sit down and get an experienced professional to go
through everything in detail. Be aware of all the factors
that will affect you if you decide to enter into an IVA.
Whilst this article is accurate, it cannot be used to
replace advice from a professional organisation.
Ed Pearson is a Debt Dr. Debt Dr specialise in debt
help and advice for individuals and small businesses.
Ed can be contacted on 0845 123 4000 or in confidence
on 07970 659266.
www.debtDr.co.uk 'prescribing life without debt'
This article does not constitute regulated advice.
Please remember that any action regarding financial
advice should always be taken only after considering
the specifics of your own situation.
To find out more about Ed try, http://www.ecademy.com/account.php?id=41788

Bankruptcy UK v. IVA UK

There are several solutions to unsecured debt problems
in the UK. Many cases though will come to a point where
a decision has to be made between an IVA or bankruptcy.
So what are the points to consider? Is an IVA or a
bankruptcy better for the debtor. Well this depends on the
debtors circumstances but here are some of the factors that
need to be understood and considered.

IVA and bankruptcy timescales differ
An IVA normally lasts for 60 months whereas bankruptcy
normally lasts for 12 months. There is a likelihood that
payments from a proportion of disposable income for 3
years need to be paid to the Official Receiver as a result
of going bankrupt in the UK under a bankruptcy restriction
order (BRO) . This BRO will be put in place by the Official
Receiver following the bankruptcy order being made by a
count or high court judge. So it means that the impact to
the debtor in terms of payments from income will last for
either 60 months for an IVA or a possible 36 months in
bankruptcy.

Position of authority lost / maintained
Bankruptcy has a more far reaching effect on the number
of positions of responsibility it can effect. Bankruptcy often
leads to a loss of position in many professional or higher
positions of both private and public office and also
directorship of a company. IVA tends to be more forgiving
but importantly doesn't affect the debtors position as a
director of a company.

Assets lost / kept
Owning property going into a bankruptcy means that
the Official Receiver will own an interest in that property.
Where the property has equity that can be realised then
there is a likelihood that the property will be sold by the
Official Receiver at some point within 3 years of the
bankruptcy and the proceeds after costs made available
to the creditors.
Owning property going into an IVA still requires an interest
in that property to be made available for the creditors
but is unlikely to lead to the disposal of the asset.

Public bankruptcy / discreet IVA debt solution
Bankruptcy is a very public matter. Bankruptcy notices
are posted in the local newspapers along with the London
Gazette. In contrast an IVA is not advertised in the local
press. For this reason an IVA is considered as a discreet
solution for dealing with unsecured debt issues.

Credit availability
IVA and bankruptcy in the UK both limit the opportunity
to get further credit in the short and medium term.
Importantly, if a debtor in the UK decides to go bankrupt
then they are legally required to inform potential lenders
that they are a bankrupt if applying for more than £500
of credit. There is no legal obligation to inform a potential
creditor that you are in an IVA.

HP agreements
The vast majority of car leasing and HP agreements have
a clause written into the contract that the vehicle must be
returned in the event of the debtor entering into bankruptcy.
The same is not true for an IVA agreement.

The creditor
Typically, an IVA provides a better return for the creditor
than bankruptcy. Whilst both solutions allow a fresh start
for the debtor, most creditors will prefer an IVA to bankruptcy
as the possibility of some sort of return is higher with the IVA.

Disposable income
Above all, an IVA requires a regular amount of disposable
income to be available on a monthly basis. If there is no
regular monthly amount of disposable income available
and the decision has been narrowed down to an IVA or a
bankruptcy then the choice will fall on the side of bankruptcy.

This article provides some insight into the decision between a bankruptcy v. an IVA in the UK. It cannot replace face-to-face
advice with a professional. For this reason, do take proper
advice from somebody who specialises in the insolvency arena
if you are facing issues with your unsecured debts.

This article does not constitute regulated advice.
Please remember that any action regarding financial
advice should always be taken only after considering
the specifics of your own situation.

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