Insolvency Explained

An IVA or Individual Voluntary Arrangement as it is known comes in various formats and one has to be wary or what format is utilised as this is a legally binding agreement in respect of outstanding debts between the debtorcreditor, therefore one must bear in mind that Individual Voluntary Arrangements (IVA) does not suit all individuals.

We will later return to the various options of IVA that one might consider.

The introduction of an IVA was to assist debtors resolve their indebtedness and government legislation has assisted by introduction of the 1986 Insolvency Act.

An IVA is a contract between debtor and creditor and more than often there is a much reduced return for the creditor covering the outstanding debts.

For an IVA to be accepted 75% must vote in favour.

Should the creditors not accept the IVA proposal then they can recommend variations whereby the IVA proposal can be resubmitted.

An IVA normally lasts for 5 years (60 months) at a fixed premium rate, however the debtor must advise the Insolvency Practitioner (I.P.) of any variation to income or gift, as this might increase the dividend to the creditors.

Many IVA proposals are submitted whereby the debtor has not only to pay a premium over 60 months but has to have his/her house re-valued with 75% of the equity going to the overall dividend of the creditors (beware of any such proposal).

Many Insolvency Practitioners (I.P.s) look for a balance between creditor and debtor and as to how much a debtor can afford, this being based on an Income & Expenditure without putting the debtor into further difficulty.

Any agreement agreed between the creditor and the debtor is private and confidential and will not appear in the “press”. It will not impinge the debtor's employment and will not deter promotion.

Should a debtor find himself/herself in difficulties be it health or unemployment etc. then he/she can ask his/her supervisor for a variation of the agreement. It could be that if such were accepted by the creditors then it may be until he/her was re-employed or back in better health whereby the supervisor could reinstate the original agreement.

Many people venture into an IVA without giving full consideration to other options that may be available to them, so therefore it is extremely important that one seeks all the facts prior to making any judgement relating to finance.

One would say that an IVA is a substitute for bankruptcy without the stigma, however the debtor has comfort in that they can retain their home, get comfort from the fact that they, in fact, trying to resolve their indebtedness which more than likely has been caused by changing circumstances resulting in insufficient income to service the overall debt(s).

From a debtor's point of view, an IVA could be a good option in that all their debts will be through one monthly payment to the Insolvency Practitioner (I.P.), more than often there is a substantial discount as a result as in some cases the debtor's debt is discounted by as much as 60%.

When one considers an IVA, one should firstly look at the options available but more than this, they must be honest with the information, as any creditor not included could take a differing action against the debtor.

Many insolvency advisors give qualification over the phone, this in itself could be the wrong route as without detailed information any advice given could be without foundation, it is therefore imperative that you ask the Insolvency Practitioner (I.P.) to lay out in plain English the proposal to be prepared on your behalf for the creditors with one note of caution; in that once you have signed the proposal and the same proposal has been accepted by your creditors, you are bound by the content!

One must ask three vital questions at the onset:

• Do I need an IVA?
• Is an IVA right for me?
• Do I qualify for an IVA?

Baring in mind you must look at all your options before entering into any contract.

Please take note (fees)

From company to company terms of business vary, at one point in the past, applicants had to find an upfront fee, however, today most do not as any fees are in included within the IVA realisations.

WORD of CAUTION

Once entering into a formal agreement with your creditors, that agreement is binding and therefore should a default take place the creditors could make one bankrupt thus their home (if owned) could be sold and other various assets could be lost as in any bankruptcy. It is therefore imperative that should they find themselves in different circumstances they should seek advice without delay from the Insolvency Practitioner (I.P.) over seeing their affairs.

With the debtor working in harmony with the Insolvency Practitioner (I.P.), they should be able to overcome many of the obstacles to create a solution acceptable to your expectations and that of your creditors.

However last but not least we recommend that any draft proposal if vetted by the debtor's solicitor before they sign as any agreement will be formally binding.