Individual Voluntary Arrangement

IVA stands for Individual Voluntary Arrangements and it is a well-known alternative to bankruptcy in most areas of UK (Whole UK but Scotland). IVA is provided for in the UK Insolvency Act 1986 and hence, it is backed by the government. Instead of going bankrupt and losing all the properties including house and car, an individual has the option to go for Individual Voluntary Arrangement scheme and pay the outstanding debt over a period of time. For this scheme to work, the creditors and debtors both must be on the same page.

Individual Voluntary Arrangement is appropriate for only those individuals who are left with either this option or the bankruptcy. It must also be noted that IVA is only for the individuals; however similar arrangement exists for companies in the UK which is known as ‘Companies Volunteer Arrangement”. In the same way, almost a similar arrangement with different name exists in Scotland for individuals to avoid bankruptcy.

IVA is usually less severe as compared to bankruptcy but still has some strict conditions which the debtor must meet in order to make IVA successful. Understanding the IVA can be difficult task. If you don’t have an adequate business and finance knowledge then it is recommended for you to consult to a professional advisor, usually a insolvency practitioner to get help in this matter. However, we have provided some basic and important information for you to get some idea about this concept.

There are certain advantages and disadvantages of IVA and these must be considered before making any decision. Along with that, there are certain positive points which make IVA look very attractive. These points are discussed in detail below.

1: Probably the biggest positive side of IVA is that you avoid bankruptcy. If you are an individual who is in huge debt but with only few assets such as a house, a car and few other assets then there are huge chances for you to lose all these assets in the event of bankruptcy. So instead of losing all your assets and going bankrupt, it would be a better option for you to go for Individual Voluntary Arrangement and try to pay back your debt in longer period of five years.

2: Normally you pay less than the original outstanding amount of money in IVA. You show your willingness and honest efforts to pay back the money but since your circumstances are not very favorable, a considerate portion of debt is written off by the creditor. So, you end up paying less money than the original debt. In most of the cases 35-60% debt is written off. So basically, you end up paying approximately only the half of the money and that too in the time period of 5 years.

3: Individual Voluntary Arrangements are for longer duration. Normally they are for 5 to 6 years. So the debt can be paid in a relatively easier way of affordable monthly installments. Instead of worrying about quick payment or going for bankruptcy, it is perhaps easy to work hard and pay a small portion of affordable debt every month.

4: The debt payment is spread over 5 years. In normal circumstances, there would be a huge element of interest charges or other late payment charges but in IVA there are no such charges and only the original agreed amount in IVA agreement is paid every month.

5: With the already known amount of fixed payment every month, the individual budgeting process becomes easy. The individual can carry on its normal daily business or job without worrying about the whole debt. All he/she needs to worry about is monthly payment.

6: With the exception of few jobs (such as those of financial advisors and directors of big limited companies), the debtor can keep on working on most jobs and professions. Along with retaining the house and other assets, the business can also be retained and managed by the individual. Hence the individual remains the owner of his estate.

7: The general period of IVA is 5 to 6 years. After this period, the debtor becomes completely debt-free.

8: There is way less publicity than bankruptcy, so for those concerned about negative publicity might see IVA as much better option. Apart from that, the creditors are also bound not to take any kind of legal action against the debtors during the whole period as long as debtors keep on paying their monthly amount.

9: IVAs are basically very flexible in nature. The nature of IVA contract can change as the individual’s financial circumstances change.

10: The process during the proposal stage and during the payment stage is carried out with the help of professional practitioner. So, the debtors don’t feel isolated at any stage and can always consult a professional in the event of any doubt. Above mentioned points were related to the debtor (The individual who must pay debt) and why the IVA can prove to be better debt management tool for them. Let’s now have a brief look at some of the points which make IVA a good tool for the creditors (The individuals or organizations looking to get their money back).

1: Most of the times, it is very difficult to recover the whole amount of money during the bankruptcy. In fact, in most cases only the small percentage of money is recovered by the unsecured creditors. Whereas, in the case of IVA there is always a chance of recovering a major portion of money. Therefore IVA can be a better option of most creditors (especially the unsecured ones) to get major portion of their money back. 40-70% of money is normally recovered in IVA.

2: As Individual Voluntary Arrangement is also an insolvency procedure, the creditors are still able to claim tax reliefs on the bad debts hence providing additional monetary benefits to them.

3: The cost for the creditors associated with IVA is also less than that associated with the bankruptcy. So due to these above facts, the Individual Voluntary Arrangement can also prove to be beneficial for the creditors along with debtors.

In the above mentioned points, we have seen a lot of merits of opting for Individual Voluntary Arrangement. IVA can be equally beneficial for debtor and the creditor. But it must also be noted here that these were the positive aspects of IVA and they surely make IVA look very attractive. There are also few other such advantages but along with that, there are also some drawbacks or demerits of IVA for both, the creditors and the debtors.

For example, the debtor will have to follow very strict regulations and his/her income statement will remain under review throughout the period of IVA. The debtor’s credit rating will become poor and taking additional credit will not be possible. Similarly, creditors won’t receive full payment in IVA but he might be able to receive the full or more amount of money during the bankruptcy. The point being that no doubt IVA has some strong upsides and it is also recommended in most cases, but it is not the absolute debt solution and proper professional advice is necessary before formally going for it.

Let’s end this article on a happy note. Once the IVA period is passed and the debtor has paid all the monthly installments, he/she is issued with the Statement of Satisfaction which shows that all the responsibilities were fully met. The concerned authorities and stakeholders would also be notified by the insolvency practitioner about the ending of Individual Voluntary Arrangement time period. Now, the debtor can also contact different credit rating agencies to notify them about the successful completion of IVA. This can help them improve their poor credit rating. Now at the end of IVA, the debtor is completely debt-free.