What is an IVA?
An Individual Voluntary Arrangement (IVA) is a statutory insolvency procedure designed to help people resolve serious indebtedness. IVAs are a binding agreement between an individual and their creditors (the people or organisations to whom the individual owes money), typically based on the individual agreeing to repay a portion of their debts over a set period of time. IVAs are available in England & Wales.
IVAs are very flexible. They can involve either selling assets to make payments to creditors, or making regular contributions from income (or both). As part of an IVA, interest charges are frozen, and creditors are prevented from taking action to retrieve what they're owed outside of the IVA process.
Unlike bankruptcy, an individual will retain control of their assets in an IVA. People in an IVA are not subject to the same restrictions as people in bankruptcy, either: people in an IVA can continue to act as a company director, for example.
All IVAs are overseen by a licensed insolvency practitioner acting as a 'supervisor'.
IVAs are the most common form of personal insolvency procedure. In 2017, 71,034 people entered an IVA, out of a total of 115,319 new personal insolvency procedures. By the end of 2018, approximately 260,000 people were in an IVA. Between 1990 and the end of 2017, almost 300,000 people successfully completed an IVA.
IVA numbers have increased rapidly in recent years, rising 36% in the five years from 2014. By contrast, bankruptcy numbers fell 32% in the same period, while Debt Relief Order numbers rose by less than 1%.
How do IVAs work?
Before an IVA starts, an individual must put together a proposal for repaying their debts (or some of their debts) to their creditors. A licensed insolvency practitioner, acting as an IVA 'nominee' can help with this process.
Once finalised, the proposal is put to creditors, who will then vote on it. IVAs need to be approved by creditors representing over 75% of the value of the debts owed to those unsecured, unconnected (i.e. not a family member) creditors voting.
Once approved, the IVA will cover all of an individual's unsecured creditors, including those who voted against the proposal. Unsecured debts can include things like credit card debts or tax debts. An IVA won't affect 'secured' debts (such as a mortgage) without the consent of the secured creditor. Without the secured creditor's agreement, these debts will have to be paid as they were before the IVA.
A licensed insolvency practitioner will oversee an IVA, acting as a 'supervisor'. They will make sure that both the individual and their creditors are abiding by the terms of the IVA. If an individual does not keep up with the terms of their IVA, the IVA may be terminated - and the individual will become liable for their debts again.
An IVA can last for any length of time, but five years is most common. Once an IVA is complete, the individual is released from the debts they owed before the IVA began, with any unpaid balance written off. IVAs will remain on someone's credit history for six years, while details will be included on the Individual Insolvency Register for the duration of the IVA. Details will be removed from the register three months after the IVA ends.
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