Definition of an IVA

When you are in a difficult financial situation, you may need to know that you needn’t file for bankruptcy. There is another way for you to petition the county court to make it possible for you to give a certain amount regularly in order to pay off your debts for a shorter term, while the remainder of what you owe can be cancelled. This is known as the “Individual Voluntary Arrangement”, or IVA. There are some IVAs that offer to pay up your debts with creditors through a lump sum scheme, while others make use of both monthly amortization payments and lump sum combined.

First Stage

As soon as you have decided to apply for an IVA, you will need to get the services of an Insolvency Practitioner to help you draw up your IVA proposal.

The proposal will contain a list of all your debt, as well as your remaining assets and any suggestions you may have to remedy your financial situation. As soon as this proposal is submitted to the court, the court may decide to issue an interim order to avoid any legal actions which may be lodged against you.

Second Stage

Your Insolvency Practitioner, also known as the Nominee, will then apply to the court requesting that your creditors come together and meet to discuss your circumstances.

The Nominee shall show your proposal to each of your creditors, after which a date for the meeting will be set. When that day comes, your creditors shall come to an agreement on whether or not to accept your proposal.

To be able to get your proposal approved, at least three-fourths of all your creditors must agree to the terms you have included therein.

Third Stage

During the creditors’ meeting, a Supervisor will be named to oversee the discussion of your proposal. In a standard IVA meeting, the proposal will usually contain provisions to cancel a major portion of the total amount you owe by the end of the IVA period.

Meanwhile, the remaining amount shall be divided into monthly payments to be settled within a five-year term.

Determining how much you have to pay will depend on the total amount that you earn and the money that you are able to allot for payments each month.

Determining Whether An IVA Is The Right Thing For You

You will need to remember that an IVA may not be an appropriate step for everyone who may find themselves in a tight financial corner. However, if you are able to come up with enough money for a monthly payment to your creditors, or can liquidate any assets you may have to make a lump sum settlement, an IVA will work in your favour.

Processing Your IVA

Your insolvency practitioner, or IP, is tasked with setting your IVA in motion. Most insolvency practitioners make a living as solicitors or accountants, but have the license and authority to handle IVAs. As soon as you have found an IP to create your IVA proposal, the first step they will take is to go to the county court and file an application for an “Interim Order”. Once the interim order is in place, none of your creditors may file a legal action against to force you to pay without first having a go-signal from the court.

It has been allowed since 01 January 2003 to submit proposals for IVAs without first having to apply for an interim order. Although this may save you money in filing fees, it will not prevent your creditors from taking legal action against you before the IVA has been circulated.

Even if you already are bankrupt, you still have the option to file an IVA. There are no limits on lodging an IVA despite the number of debts you may have. In a section of this report, you will find “Speeding Up Your IVA” which will help you apply for an IVA in whatever financial situation you may find yourself in.

As soon as your IP sends your IVA proposal to all your creditors, a “Creditors’ Meeting” is set up, with a minimum of 14 days’ notice to your creditors. You will need to coordinate with your IP and verify whether all of your creditors have been informed of this. If some of them have no knowledge of this meeting, they are not obliged to vote over your IVA, and may still have recourse to go after you for payment of your debts.

During the creditors’ meeting, your creditors will vote whether or not to accept the terms of your IVA. In most instances, some creditors opt not to attend the meeting at all, and instead send notice of their vote through the IP.

The IVA will be approved whenever there at least 75% of your creditors “by value” who voted to agree to its terms. The remaining creditors have who voted “nay”, or those who did not vote at all, are then obliged to conform to the conditions of the IVA. “By value” is a term used to refer to the creditors to whom you owe at least 75% of your debt, regardless of how many creditors you do have. This means that if the creditors who own three-fourths of your debt veto your IVA proposal, then it will not be approved and enforced by the court. There may be some instances before voting when creditors may argue over the terms of the IVA. You may be asked to pay a larger amount each month, or add some assets that you did not include in your proposal. Sometimes, the haggling will include trying to stretch the payment period to a longer term.

As soon as the IVA has been approved, your IP will be given the task of finalizing it and ensuring that you comply with the obligation to pay the exact amount each month. After the IVA has been approved and another creditor comes forward with their claim, they will only be allowed to receive whatever amount was agreed upon in the IVA, even if they were not party to it in the beginning.

Assuming your IVA has been turned down, then you will find yourself back in the same financial situation prior to the filing of the interim order. Your other recourse would be to deal with each of your creditors at a time. After a period of one year, you are eligible to file another interim order application with the court.

Locating An Insolvency Practitioner

To secure a listing of insolvency practitioners, visit your local county court for this information.

There is also a list available at the local office Receiver’s office. To locate your local Official Receiver’s office, ring The Insolvency Service Central Enquiry Line at 020 7291 6895, or look it up in the telephone directory of Yellow Pages.

BEWARE: Steer clear of “ambulance chasers”. They are companies who offer to find you an IP in exchange for a fee. You do not need a go-between to find an IP, as you will be readily able to find one directly.

Where To Get A List Of Available IPs:

The Association of Business Recovery Professionals
4th Floor Halton House
20-23 Holborn
London
EC1N 2JD
Tel No: 020 7831 6563
www.r3.org.uk

The Insolvency Practitioners Association
52-54 Gracechurch Street
London
EC3V OEH
Tel No 020 7623 5108
www.insolvency-practitioners.org.uk

The Insolvency Practitioners Policy Section
The Insolvency Service
PO Box 203
5th Floor
21 Bloomsbury Street
London
WC1B 3QW
Tel No 020 7637 1110
www.insolvency.gov.uk

For further information on where to find IPs, visit your local reference library and ask where you can find “The Directory of Authorised Insolvency Practitioners,” an Insolvency Service publication. Here, you will find a listing of IP’s per area, and their regulatory authority. It is advised that you stick to licensed IP’s and avoid those who do are unlicensed.

How Much Does An IP Charge?

The average cost to hire an IP will amount to just over £4,000. This is the fee you have to pay an IP for arranging and setting your IVA in motion. To make sure you get a reasonable price for good service, get a cost estimate from several insolvency practitioners and settle for the one who can give you the best deal. A majority of IPs will ask to meet with you free of charge to determine whether applying for an IVA is an appropriate remedy for your financial circumstances. Some IP’s, however, will demand payment at the start. If you are lucky, you will be able to find an IP who will consent for their payment to be included in the monthly amortizations stated in the IVA.

What If I Can’t Afford To Pay The IVA After Its Approval?

If the amount agreed upon in the IVA is more than you can afford to pay each month, there might be a possibility that you won’t be able to keep the payment schedule. It may be that the monthly amortizations were set at an improbably high amount from the start. Consult with your IP so he can request your creditors to settle for a much lower amount. However, you might have to pay a certain fee for this to be arranged.

After the IVA has been amended and a lower amount has been set, yet you still cannot make payments, your IP has the option to cancel the IVA and start the proceedings to declare your bankruptcy. Should your IP decide against going the bankruptcy route, it will be your creditors who may file legal charges against you for non-payment of debts. To prevent this from happening, you will need to talk to each of your creditors and make separate payment arrangements with each one in order to appease them.

The Merits Of Arranging An IVA

You may want to take a closer look at IVAs to determine whether arranging one is a necessity for your situation. There are some advantages to filing an application for an IVA in order to avoid declaring bankruptcy:

1.) If you are a small business owner, an announcement of bankruptcy may affect your chances of keeping your business afloat.

2.) Declaring yourself bankrupt may lose you your job, particularly if you are making a living as an accountant, as a police officer, or as a member of the armed forces.

3.) If you stand to receive a large sum of money or have the means to secure the same, you may want to have an official agreement with your creditors such that you arrange to pay them in lump sum so they may cancel the rest of your debts.

4.) A high monthly income on your part will enable you to make the scheduled payments according to the terms of the IVA.

5.) You do not need to worry about having to include your house and other major assets as part of the payments to make in the IVA. As long as you have gotten the agreement of your IP and creditors not to include these in the terms, you have nothing to fear. However, be prepared for your creditors to haggle over wanting to take possession of your home equity (Refer to “Why An IVA Would Be A Bad Decision For You” section of this report).

6.) If you were to declare yourself bankrupt, you would be restricted from making big financial transactions, like opening a bank account, which you could still do if you were under the contract of an IVA.

Why An IVA Would Be A Bad Decision For You

On the other hand, you will need to assess your situation to see whether an IVA might do more harm than good. Below you will find some reasons why applying for an IVA might be a disadvantage for you:

1.) You will need to assess whether you can actually keep the payment terms of the IVA, if you cannot, your creditors will force you to go bankrupt.

2.) It will be very unfortunate for you if your creditors cannot come to an agreement over your terms in the IVA. In this case, your IVA will be ousted and you will not be able to file another one until a twelve-month period has passed.

3.) If your IVA was not positively voted upon and you already paid a fee to have it arranged, your money will not be refunded to you, and you will find yourself right back where you started.

4.) If you are the sole owner of your own home, it will be possible that both your IP and your creditors would compel you to dispose of your house as one of the terms in the IVA. In a typical IVA agreement, you will find a standard clause which instructs you to have an estimate done to determine the value of your house for the purposes of turning over its “equity” or value over to the creditors after a certain number of years.

5.) You might find yourself in a situation where you cannot afford to pay the monthly instalments for an extended period of time. This is a reason why you must study the monthly payment schedule very carefully to determine whether the amount is practical for you and your budget.

6.) In the unfortunate event that your situation takes a turn for the worse, you may not be able to make payments. Prepare for the possibility of your IVA getting cancelled, particularly if your IP cannot convince your creditors to agree on a new IVA.
Speeding Up Your IVA

According to the new rules in the Enterprise Act, as of April 2004, you will now be able to apply for an IVA even if you have already declared bankruptcy. This is made possible by filing a Fast Track IVA at the office of the Official Receiver. If it will be more beneficial for both you and your creditors, the Official Receiver may decide to supervise the arrangement of your IVA to allow your creditors a chance at getting their money back, which will normally be impossible if you were still under a state of bankruptcy.

Some of the advantages of a Fast Track IVA include:

1.) Fees have been pre-determined so you won’t have to spend a huge sum of money in costs.

2.) There will be no need for a “Creditors Meeting”.

3.) Your creditors will receive your Fast Track IVA proposal via the post office, and they can either accept it, or reject it and lose the chance to get paid.

4.) This type of IVA proposal is set and its terms are not open for amendment.

5.) If your creditors accept your Fast Track IVA proposal, the Official Receiver will start the proceedings to cancel your bankruptcy status.

6.) The Fast Track IVA is your last resort. If your creditors fail to agree to its terms, you will go back to being bankrupt, and the Official Receiver will have no other recourse to remedy your situation.

IVA Information And Records

Available By Public Register

Be aware that IVA records are of public interest and therefore noted on a public register. Your IVA records are available to anyone who may need the information, which they can access personally, through mail or via fax. Your IVA records are also obtainable through the Internet, where you can print out a search form online. To get a hard copy of the form, you may also request one from the Insolvency Service so they may mail you a copy. Records of your IVA will stay on the registry until such time as its terms have been accomplished and the IVA ended.

The Individual Insolvency Register
The Insolvency Service
5th Floor, West Wing
45-46 Stephenson Street
Birmingham
B2 4UP
Tel No: 0121 698 4000
Fax No: 0121 698 4406
www.insolvency.gov.uk

Drop by your local Official Receiver’s Office to personally secure IVA records. These records are usually kept on file up to a period of 6 years at the offices of the Credit Reference Agency. As soon as you have carried out the conditions of your IVA and its term has ended, your IP will need to inform the credit reference agency through letter so they may place your records under their files labelled “complete”. To ensure that your credit information has been revised, you will need to furnish copies of your IP’s letter to at least 3 different credit reference agencies.

Airing Your Grievances Against Insolvency Practitioners

If you are unsatisfied or offended by the conduct of an IP, you will need to determine the authorising group they are affiliated with. You can get access to this information from your IP himself. The first thing you should do is to compose a letter of complaint to your IP. If this does not work for you, send your complaint in writing to the IP’s authorising organization instead. You will find more relevant information on this from a leaflet entitled “How to make a complaint against an Insolvency Practitioner”.

The Law Society
113 Chancery Lane
London
WC2A 1PL
Tel No: 020 7242 1222
Tel No: 0870 606 2500 (national rate)
www.lawsociety.org.uk

The Competent Authority
The Secretary of State for Trade and Industry (SoS)
Insolvency Practitioner Section
PO Box 203
21 Bloomsbury Street
London
WC1B 3QW
www.insolvency.gov.uk

The Institute of Chartered Accountants (ICAEW)
Gloucester House
399 Silbury Boulevard Central
Milton Keynes
MK9 2HL
Tel No: 01908 245 100
www.icaew.co.uk

The Association of Chartered Certified Accountants (ACCA)
29 Lincoln’s Inn Fields
London
WC2A 3EE
Tel No: 020 7396 5700
www.accaglobal.com

The Insolvency Practitioners Association
52-54 Gracechurch Street
London
EC3V 0EH
Tel No: 020 7623 5108
www.insovency-practitioners.org.uk

You will need to direct your grievance to the Official Receiver, then to the Insolvency Service if the offending IP in question is a acting in the capacity of a Trustee in Bankruptcy.

To avail of information about company insolvency or ineligibility, you may get in touch with:

The Registrar of Companies
Companies House
Crown Way
Cardiff
CF14 3UZ
Tel No: 02920 388 588
www.companieshouse.gov.uk

Seek Professional Opinion

It is understandable that you may constantly fret about the debts you owe, and you may be under the impression that an IVA is the only option available to give you relief. Before you start the ball rolling, it would be best to consult a professional debt counsellor to get an unbiased and qualified opinion.

A thorough evaluation of your circumstances by a debt specialist will help you determine the best option available to you.

The debt counsellor will walk you through the pros and cons of an IVA, the process of securing one, and what to expect once you’ve applied for its arrangement. Remember that being in debt is not an easy load to carry and taking out an IVA is not the answer to banishing your debts completely. Take note, however, that many people have considered applying for an IVA as it is a better option in securing relief from their debts, compared to the other alternatives available. Whatever your case may be, it will still be in your best interest to allow a debt counsellor to help you make the best choice applicable to your situation.