An Individual Voluntary Arrangement (IVA) is a debt solution which involves yourself and your creditors coming to a legally binding agreement to extend your loan term and make reduced monthly repayments over this new timeframe.
The following guide will explain the procedure you will need to take in order to set up an IVA.
Before you start proceedings to get an IVA
It is imperative you ask an insolvency practitioner about all of the debt solutions you can use before making the final decision to set up an IVA. You should ask them about the amount of money you will need to have each month to pay into your IVA, and how it will impact your ownership of your assets. You should also make sure you are aware of the potential risks and whether it will affect your employment status, because certain work contracts prohibit employees from using an IVA.
Stage one: Application for an interim order
Whilst an interim order is not the only way to prevent your creditors from pursuing court action against you, they can nevertheless be a useful way of combating more aggressive activity from your creditors. Your insolvency practitioner might decide to apply for one right from the outset, and you should discuss whether you’re applicable for one or not
Alternatively, they could simply lobby the courts to have all legal action against you adjourned until the outcome of your IVA application is decided.
Stage two: Evaluation of your finances
After you have managed to secure legal protection from your creditors, you will need to sit down with your insolvency practitioner and discuss your finances with them. You will need to prepare a number of financial documents, such as your bank statements, pay slips and loan agreements, so that they can evaluate your situation and identify the extent of your difficulties. It would also be worthwhile compiling a list of your monthly living expenses, such as the total you spend on food, housing, utilities and travel, and subtracting this from your monthly income to determine how much disposable income you would have each month to pay into an IVA.
You will also need to provide financial documents that display how much money you have put away in your pension and in your savings accounts and you will need to be prepared to be asked to part with some or all of this cash in order to repay a portion of your outstanding debt. Furthermore, certain assets such as your property and vehicle might be included in your IVA, and you will need to manually omit these to ensure that they are not put at risk of being sold later on down the line.
Your IP will then evaluate all of these factors and will determine how much you can realistically afford to pay into your IVA each month. They will also carefully consider which assets and debts you want to include in your IVA and will then devise your final proposal to be submitted at a later meeting with your creditors. If your insolvency practitioner believes that leaving out certain assets you own will negatively affect your application, then they might request that you change your mind on the matter and stress that future of your IVA rests on it.
Stage three: Devising the proposal
After your finances and aims have been discussed with your insolvency, they will work collaboratively with you to devise your final proposal to be reviewed by the court and your lenders. Your proposal will contain a request to extend your loan term for fixed period of time, typically five years. It will also request to reduce your payments and pay them in monthly instalments.
Your insolvency practitioner will also write and submit a report to the court which will which will contain their professional view about whether your IVA will succeed or not. The report will include all relevant financial information about you such as your annual salary, assets, liabilities and expenses. It will also include a repayment plan which outlines how you will repay your debt and a request to extend your loan term to a long-term timeframe.
Finally, the report will include the insolvency practitioner’s opinion about why using an IVA would be more beneficial to your creditors than bankruptcy; they will only make this case if they genuinely believe you can afford to repay your creditors.
Stage four: The creditors’ meeting
After your final proposal has been created, your insolvency practitioner will arrange a meeting with all your creditors to pitch it to them. It is recommended that you go to this meeting and give a personal insight into your situation, to give yourself the best chance of succeeding with your application.
Your creditors will then vote on whether to accept your proposal and providing that you acquire a majority vote comprising 75% of your overall debt, your IVA will begin immediately. After this, all of your creditors included in your IVA will be bound to its terms and conditions and you will have to start making monthly payments to your insolvency practitioner, who will then redistribute this money to your creditors.
