What is an individual voluntary arrangement?

An individual voluntary arrangement (IVA) is a formal agreement to repay debts between you and your creditors. An IVA is a way to avoid bankruptcy. Its generally suitable for people who are unable to make their regular debt repayments in full but who have some money to give to their creditors each month or in a lump sum payment. An IVA is set up and supervised by an insolvency practitioner.

Key characteristics

An IVA proposal sets out how you intend to repay your creditors, usually over a period of five years. The arrangement provides for you to rearrange payment of your debts and for your creditors to accept less than 100 pence in the pound of their debts.

Once the proposal is prepared, a meeting of the creditors must be called by the nominee where the creditors will than have the opportunity to vote on the proposal. If at least 75% by value of the creditors vote in favour, the IVA will be approved. In general terms, creditors vote in favour of the IVA if they receive a better outcome than in case of your bankruptcy.

Before the creditors’ meeting an insolvency practitioner acting as nominee practically assists you with setting up the arrangement. After the creditors meeting and the acceptance of an IVA the insolvency practitioner starts acting as a supervisor of the arrangement. The supervisor’s duty is to make sure that you and the creditors comply with the terms of the IVA.

After the IVA approval, the creditors must stop debt recovery action and freeze interest and charges. You need to make the agreed payments for the duration of the IVA and comply with proposals terms. If you complete the IVA, the balance of your debts is written off (discharged).

There is no minimum or maximum level of debt for an IVA, and requirements may vary for different insolvency practitioners. As a guideline, an IVA should be explored as an alternative to bankruptcy if you have two or more unsecured debts totalling at least £10,000 and you are able to repay at least £100 per month for the duration of the IVA.

Advantages:

• You may continue running a business.
• If an IVA is approved, even creditors who voted against it have to comply with it.
• If an IVA is approved, unsecured creditors cant take any further action.
• An insolvency practitioner will help you prepare your proposal, including agreeing your income and expenditure based on guidelines acceptable to creditors.
• You make only one payment each month. The insolvency practitioner administers and distributes your payments.
• Many insolvency practitioners will let you pay their fees monthly, as part of the IVA.
• You can save your home in an IVA by arranging for your partner, relative or a friend to buy your share in equity. Also you can make additional payments into an IVA. The additional funds could come from a remortgage or a loan, normally on the 5th year of the arrangement. (Equity is the money you would make from the sale of a property, after any secured loans are paid off.)
• Once your IVA is completed, the balance of what you owe your creditors is written off.

Disadvantages

• If the IVA is approved, a record will be made in your credit file advising potential lenders that you have entered the formal insolvency process. This record will remain on your credit file for six years.
• Some insolvency practitioners may require payments in advance for helping you to prepare proposals.
• An IVA cannot affect the right of secured creditors to enforce their security, unless they agree. The debt discharge or “debt forgiveness relates to unsecured creditors (personal loans, credit cards, overdrafts, utility bills, tax liabilities etc.) and secured creditors (mortgages, secured loans, hire purchase agreement etc.) are excluded from the arrangement.
• If you are a homeowner, the IVA must deal with the equity (value) in your residential property. You will be expected to remortgage the property, usually in the 5th year of your IVA, and to introduce a lump sum to your creditors. If you are unable to remortgage, your IVA payments are typically extended for another year. (Equity is the money you would make from the sale of a property, after any secured loans are paid off.)
• If your circumstances change, and the insolvency practitioner cant get creditors to accept the changes, the IVA is likely to fail.
• If your IVA fails, you will still owe your creditors the full amount of what you owed them at the start, less whatever you paid them under the IVA.
• If your IVA fails, you may be made bankrupt.

Insolvency practitioners and their fees

An insolvency practitioner will charge fees for their role as the nominee and as the supervisor of the IVA. Most insolvency practitioners do not charge upfront fees, but are paid on an on-going basis, typically taking your first few contributions as fees and then a percentage of the remaining contributions.

The nominee fees and expenses are charged for the pre-appointment work in setting up the proposals to creditors and conducting the creditors meeting. Depending on the complexity of the IVA the nominee fees are fixed in the region between £1,000 and £3,000.

The supervisory fees and expenses are charged for the post-appointment work after the creditors meeting in managing the arrangement until its completion. These fees are controlled by creditors and set at between 15 and 20% of your monthly IVA payments.

How we can help

We provide general advice and information on IVAs. There is no charge to a client for the initial financial review, initial advice and the preparation of a case file that may be used by an insolvency practitioner to help set up an IVA. We dont charge our clients for making referrals to an insolvency practitioner for further advice and assistance.

If you think an IVA is your preferred option, with your permission we may make a referral to our preferred insolvency practitioner. In some circumstances we may be paid by the insolvency practitioner for the work carried out by us in putting together your case file.

Our preferred insolvency practitioner’s fees and charges for setting up and supervising an IVA are clear and in accordance with best industry standards. The nominee fees vary depending on the complexity of the IVA but typically are between £1,000 and £3,000. The nominee fees will be paid out of the first payments you make into the IVA and these will not be paid to your creditors. This means your accounts will go into arrears (or further into arrears). The supervisor fees are normally capped at 15% of your IVA payments.

All fees will be discussed with you prior to any plan being put in place. Creditors must approve the proposal, including insolvency practitioners fees, before it can be accepted. If creditors reject the IVA proposals our preferred insolvency practitioner doesn’t seek to recover the balance of the nominee fees from you.

Further information

The Association of Business Recovery Professionals booklet “Is a Voluntary Arrangement right for me?”

The Insolvency Service Guidance on Individual Voluntary Arrangements