An Individual Voluntary Arrangement (IVA) is the leading alternative to bankruptcy in the UK. Eliminating serious debt can be achieved in just 60 months.

Eliminating debt is a priority, especially for homeowners who urgently need a bankruptcy alternative. Whilst a debt management plan helps manage multiple small unsecured agreements, it can take a long time to clear debt completely. Whilst it won’t be possible to become free of debt overnight, an Individual Voluntary Arrangement (IVA) allows that person to affordably eliminate debt over the next 5 years with full legal protection from creditors.

What is an Individual Voluntary Arrangement?

An IVA is a legally binding obligation between a debtor and his or her creditors to repay a percentage of any money owed over the next 60 months. An Insolvency Practitioner (IP) is a legal requirement and will work closely with the client to put together a viable proposal. Following a budgetary assessment, it will be decided how much that person can affordably offer creditors from any disposable income that is available. As a guide, most lenders will expect at least 25% of the amount owed (plus the IP’s costs) to be repaid.

Getting Approval for an IVA

An IVA is only suitable for unsecured serious debts that exceed £15,000. Eliminating debt will only be possible if 75% of creditors, in terms of value, support the proposal. Unless this happens, an alternative to bankruptcy won’t be possible. Creditors will either reject the proposal or suggest a series of revisions that may or may not lead to its acceptance. An Individual Voluntary Arrangement will be binding upon all creditors, regardless of whether they voted in its favour or not.

IVA for Eliminating Debt in 5 Years

  • The debtor will be expected to make a monthly repayment via standing order for a period of 60 months. Some agreements require a payment for 72 months, although this is often due to a request for extension due to financial difficulties or exceptional circumstances.
  • Every 12 months, the client will be expected to provide income and expenditure details for an annual review. Any over-time will normally be split with creditors on a 50/50 basis.
  • At the end of year 4, a homeowner will be expected to get an IVA mortgage for up to 75% of the available equity in order that this can be disseminated to creditors. This will be subject to a property valuation, mortgage availability and general affordability.
  • Once all 60 payments have been made, this will eliminate debt completely. A creditor is not legally able to pursue that person for repayment so any issues should be reported to the IP.
  • At the end of year 5, the IP will send his client a certificate of completion. It is the responsibility of that person to send a copy to Experian, Equifax and Call Credit – the three leading credit reference agencies.

Other Benefits of an Alternative to Bankruptcy

  • An Individual Voluntary Arrangement allows that person to maintain their professional status. This is particularly important for those who work in banking, law and certain government positions.
  • Unlike declaring bankruptcy, an IVA is not made public. Whilst it will show on a central insolvency register, it will not be published in a local newspaper or the London Gazette.

Pros and Cons of an IVA as a Bankruptcy Alternative

An Individual Voluntary Arrangement is not an easy way of eliminating debt. It requires a financial commitment for a period of 5 years and a lot of things can happen in that timeframe. Due to the cost of hiring an IP, it is only suitable for those who owe a minimum of £15,000. However, it allows a homeowner to stay in his or her home, prevents creditor harassment, protects professional status and the matter won’t be made public. Although it is possible to clear debt by paying back a small percentage of the amount owed, an IVA will lead to a lower credit score rating for the next 6 years.

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