If you’ve got debts and are considering bankruptcy, you may have heard of an Individual Voluntary Arrangement (IVA). An IVA is a formal and legally binding agreement between you and your creditors that allows you to pay your debts back over a set amount of time.

How does an Individual Voluntary Arrangement work?

An IVA is set up and managed by a Licensed Insolvency Practitioner (IP). Together, you’ll work out the best repayment plan. The IP will then work as an intermediary between you and your creditors, to gain agreement to the plan from both sides.

An Individual Voluntary Arrangement can only go ahead if 75% or more of your creditors agree to the Insolvency Practitioner’s proposal. You then make monthly repayments to the Insolvency Practitioner, who will divide your payment between your creditors as agreed.

Importantly, an IVA is only available to residents of England, Wales and Northern Ireland, but not Scotland.

What is an Insolvency Practitioner?

Insolvency practitioners work with businesses and individuals who are struggling financially. They help by initiating financial processes that help turn financially distressed companies around, or insolvent companies and individuals to repay what they owe. In short, an Insolvency Practitioner helps you or your business organise your finances through a set of formal processes.

What are the benefits of an IVA?

You can pay your debts in one lump sum every month

An Individual Voluntary Agreement can be a more attractive option than going bankrupt. While it is seen as the final option before bankruptcy, it does allow you to pay your debts in one lump sum every month at an amount you can afford.

Your creditors cannot take further action against you while an IVA is in motion

As an IVA is a legally binding contract, creditors have to respect it. This means they cannot take any further action against you while repayments are being made, such as applying for a County Court Judgement (CCJ). 

You only pay off your debts for as long as your agreement is in place

As an IVA is set out over an agreed amount of time, you’ll only have to make repayments for the amount of time it is in place. This makes it easier to manage your finances, and avoids you getting extra fees put on top of your accounts. Once the repayment period ends, no more money will be owed to creditors, even if there’s debt left over.

You’ll have expert financial help and advice on hand

By working with a licensed Insolvency Practitioner, you will have expert help on hand to help guide you through the process, and talk you through the risks and benefits.

An IVA can prevent you from bankruptcy

An Individual Voluntary Agreement is more flexible than bankruptcy. It can be more preferable because it can:

  • Protect your home or other assets you don’t want to lose
  • Help you retain control of your own business
  • Prevent you from losing your job if you’re in some professions, such as the police force.
  • Help you avoid the negative social impacts of bankruptcy. 

What are the risks of an Individual Voluntary Arrangement?

Setting up an IVA does have some associated costs 

There can be some set up costs associated with creating an IVA as it has to be initiated and managed by an Insolvency Practitioner. These fees often include a set-up fee and a handling fee for every time a payment is made.

If you default on your IVA payment, you will be at risk of bankruptcy

If your circumstances change and you can no longer meet the repayments, the IVA will default and you could be at risk of bankruptcy.

An IVA can sometimes stop accountants and solicitors working

If you are an accountant or solicitor, you may find having an IVA prevents you from continuing to work. 

Your personal pension counts as your income

If you have a personal pension, this will be counted as income and therefore you’ll have to make contributions to the IVA from your pension pot.

An experienced Insolvency Practitioner will understand this is an extremely distressing time for you and will work with you sensitively and with your best interests in mind. To talk through your personal finance solutions, Beacon Licensed Insolvency Practitioners is on hand. To help get your finances back on track, call 02380 651 441.

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