What is an IVA? (Individual Voluntary Arrangements)

What is an IVA?
(Individual Voluntary Arrangement)

An ‘IVA’ or Individual Voluntary Arrangement is a formal agreement made between you and your creditors – or the people you owe money to – where you agree to make reduced payments for a period of time towards your debt. This allows you to pay off a percentage of what you owe, with any remaining debt being classed as settled after 5-6 years – known as a‘composition of debts’. An Individual Voluntary Arrangement is different to a debt management plan , in that a debt management plan is not legally binding. IVAs are often the most beneficial debt solution for people with significant assets to protect, such as property or a business.

What is an IVA: How does an IVA work?

If our Insolvency Practitioner recommends that an Individual Voluntary Arrangement is the best choice for you, then 1Stop Money presents your case to an IVA provider, who will then make the first steps towards entering you for one. You will simply need to provide all essential information regarding your current financial situation, and based on that, a repayment amount will be agreed. You only need to read and sign the proposals and return them to your appointed Insolvency Practitioner or IP.

Most Individual Voluntary Arrangements agree upon a monthly payment that is reasonably proportionate to the clients income, over a period of 60 months (5 years). The IVA proposal must be prepared by a fully licensed IP or Insolvency Practitioner who will present it on your behalf at the creditors meeting. If 75% (in value terms) of the creditors are in favour of the agreement, then it will become legally binding and all creditors must abide by it – whether they voted or not. The arrangement can sometimes be subject to modifications if requested by the creditors – these will be discussed with your Insolvency Practitioner.

An Individual Voluntary Arrangement is legally binding. Providing you meet all repayments, you will be free from these debts when the term of your agreement is finished – regardless of how much has been paid off. For the duration of you IVA, your financial circumstances will be monitored closely.

Once a proposal has been accepted, the Insolvency Practitioner (IP) is responsible for monitoring the IVA’s progress, ensuring that the agreed terms and conditions discussed at the creditors meeting are adhered to – see The Roles of the Insolvency Practitioner.

Once you have entered into the agreement, it is your responsibility to make the agreed payments to the IP and to make them on time. The IP will then distribute the payments to your creditors on a pro-rata basis – in accordance with the terms agreed at the introduction of your arrangement. This continues until the end of the term – generally 5 years, but anywhere up to 6.

NB - It is in your own interest to maintain your payments. Failure to meet payments will result in the failure of the Individual Voluntary Arrangement.

Once the agreement is completed you will be considered debt free, even though you may still have debts remaining. These outstanding balances will be disregarded – known as a ‘composition of debts’.

What is an IVA: What will happen to my property?

If you do enter into an IVA and you have an endowment policy linked to your mortgage or equity in the property, then you may have to cash it in and pay the proceeds into the arrangement. This usually occurs at the end of an IVA term, and is a prerequisite of an IVA agreement – it can mean the difference between keeping your property or losing it to pay off debts. If you do not own your own home or any other assets , then bankruptcy may be a better debt solution – for more information see Bankruptcy.