What is an individual voluntary arrangement?
APRIL 2015 What is an individual voluntary arrangement? An individual voluntary arrangement (IVA) is a legally binding agreement between you and the people you owe money to (your creditors). It is an alternative to bankruptcy. An IVA proposal sets out how you are going to repay the creditors either by way of instalments, usually over five years, or a short term arrangement if you have a lump sum of money to put forward. An IVA can be made up of a mixture of lump sum and instalments. Any unpaid debts included in the IVA are written off when the arrangement is completed. IVAs are set up by a licensed insolvency practitioner. They will contact your creditors and make proposals of repayment on your behalf. The proposals have to be accepted by the voting creditors who hold at least 75 per cent of the value of your debts. The insolvency practitioner can also apply for an interim order if creditors’ enforcement action is imminent. Am I eligible for an IVA? To qualify for an IVA you must: have a regular income from employment or pensions (you can apply if you are selfemployed but the self-employment should produce regular income) have disposable income of at least £100 per month have at least three debts with two or more different creditors have at least £15,000 of debt (due to the high costs of an IVA) be able to keep up payments on secured debts, mortgages and secured loans be given appropriate debt advice not have any disputed debts What is the IVA protocol? Most IVAs are now protocol compliant. The IVA protocol is a set of voluntary guidelines which many insolvency practitioners follow. The guidelines cover how a straightforward consumer IVA should be put together and how the insolvency practitioner should behave. The protocol has been set up to make the IVA process quicker and simpler. Under these protocols a proposed IVA should be accepted without modification and if the creditors vote against it, they must disclose their reasons to the insolvency practitioner. Can I include all my debts? You can include most of your debts in an IVA, including priority debts although your creditors may object - see above. 2 Money Advice Unit 0300 123 4040 www.hertsdirect.org/benefits Issue 5 The following debts cannot be included: maintenance, or arrears of maintenance, ordered by a court Child Support Agency arrears magistrates' court fines mortgage, secured loan or rent arrears unless your lender or landlord agrees (which is unlikely) student loans If you have a hire purchase agreement you will need to check your contract as it may include a clause enabling the creditor to cancel the agreement if it is included in an IVA. What happens to my home? If you are a home owner, your insolvency practitioner will normally want to include a special section within your IVA proposal called an ‘equity clause’. This means that during the IVA (normally in the fourth year) you would be expected to apply for a secured loan or re-mortgage to pay back some of the debt. If you cannot do this, your insolvency practitioner may want you to sell your home instead unless your IVA is protocol compliant. In these cases, approximately six months before the end of the IVA you will be expected to re-mortgage to release any equity over £5,000 up to a maximum of 85 per cent of the valuation less any outstanding mortgage. The equity released is distributed amongst creditors. The re-mortgage payments must not be more than 50 per cent of your monthly payments to your IVA and the new mortgage must not be longer than the existing term or go past your retirement age. The re-mortgage repayments are then deducted from your IVA payments. If, after that, your IVA payments fall to below £50 a month, your IVA will be concluded. If you are not able to re-mortgage, your IVA can be extended for up to 12 months rather than make you sell your home. However, if you do not keep up your IVA payments there is a risk you could be declared bankrupt which could then result in you losing your home. What happens to other assets? IVA rules on assets are not as strict as bankruptcy rules and you may be able to keep certain assets as long as your creditors agree. Any inheritance or other monetary gain will be passed on the creditors. What happens if my money goes up or down? The insolvency practitioner will carry out a review of your income and expenditure every 12 months. If your income increases, you will be expected to increase your IVA contributions by 50% of the net surplus. If you are made redundant during the IVA you will have to pay 3 Money Advice Unit 0300 123 4040 www.hertsdirect.org/benefits Issue 5 any monies received that are equal to more than your previous six month’s take home pay. If your income decreases, the insolvency practitioner can reduce your payment by 15% without the creditors’ permission. You could also be allowed one payment break of up to six months. Your IVA will be extended accordingly. If you fail to disclose any income, assets or debts the insolvency practitioner can extend your IVA and you may be committing a criminal offence. What happens if I default on the payments? If you default on the arrangement you will be given the chance to remedy and/or explain the default. If you fail to do this the creditors can vary the terms of the IVA, bring the arrangement to an end, or make you bankrupt. How else will an IVA affect me? Your IVA will be registered on the Individual Insolvency Register, which is a public document, until it is completed or terminated. Records of IVAs are held on credit reference agency files for six years from the date the IVA began or until the IVA ends if this is longer, but will be marked ‘complete’ once the agencies are informed of this by the insolvency practitioner. You may continue to find it difficult to get credit even after the IVA has been removed from your credit file as some lenders ask if you have ever had an IVA or been bankrupt in the past. IVAs do not hold as much stigma as bankruptcy. It is also easier to continue running a business and it is unlikely that you would lose your job due to an IVA but it is always advisable to check that your profession will not be affected. You will not be able to take out any unsecured credit while going through an IVA and you will have to maintain a strict budget. All interest and charges on your unsecured debts will be frozen. Providing you keep to the terms of your arrangement, you will be protected from any further enforcement action by your creditors. Other IVAs Not all IVAs follow the protocol, especially where there are disputed debts or investment properties. Lump sum IVAs are available for those who have a low disposal income but access to capital, including through the sale of their home. Some IVAs are a mixture of both instalments and a lump sum. An IVA can be granted even during bankruptcy.This is called a fast-track voluntary arrangement and you can apply for it by putting a proposal to the Official Receiver after you have been made bankrupt. Seek advice if you think this may be relevant to you. 4 Money Advice Unit 0300 123 4040 www.hertsdirect.org/benefits Issue 5 How do I find an Insolvency Practitioner? Be careful of fee paying organisations who say they will find an insolvency practitioner for you. Use the insolvency practitioner directory available on https://www.gov.uk/find-aninsolvency-practitioner or www.r3.org.uk Alternatively, you could use one of the free debt advice agencies listed at the end of this factsheet. Further help and advice Citizens Advice Bureaux (CAB) Online information: Information about local CABx and opening times: 0344 4111 444 www.adviceguide.org.uk www.hertfordshirecab.org.uk Civil Legal Advice Free legal advice in England and Wales if you’re eligible for legal aid 0345 345 4345 www.gov.uk/civil-legal-advice The Insolvency Practitioners Association: Valiant House 4-10 Heneage Lane London EC3A 5DQ Tel 0207 623 5108 www.insolvency-practitioners.org.uk The Association of Chartered Certified Accountants: 29 Lincoln’s Inn Fields London WC2A 3EE Tel 0207 059 5000 www.accaglobal.com Business Debtline: Offers a free, confidential and independent helpline for self-employed people and small businesses who have debt problems. 0800 197 6026 (Mon - Fri 10 am. - 4.00 pm & 24 hour answering machine) www.businessdebtline.org/ National Debtline: 0808 808 4000 www.nationaldebtline.org StepChange Debt Charity (formerly CCCS): 0800 138 1111 www.stepchange.org Payplan: 0800 917 7823 or email [email protected] www.payplan.com 5 Money Advice Unit 0300 123 4040 www.hertsdirect.org/benefits Issue 5 The Debt Counsellors 0300 456 2726 How you can contact Hertfordshire County Council Our website Visit our website for more information about support for carers and adult social care - apply online for meals on wheels or a Blue Badge and make a referral for care services www.hertsdirect.org/adults If you would like more information about benefits and debt you can find a wide range of Money Advice Unit factsheets www.hertsdirect.org/benefits Hertfordshire Directory Find national and local community groups, charities, services and activities www.hertsdirect.org/directory HertsHelp Independent information and advice on local community services and care funding Telephone: 0300 123 4044 Minicom: 0300 456 2364 Email: [email protected] Call us For information and advice on how to get care and support Telephone: 0300 123 4042 Text Message: 07797 870591 Textphone: 0300 123 4041 Calls to 0300 cost no more than a national rate call to a 01 or 02 number If you are worried that you or someone you know is at risk of abuse or neglect Call us on 0300 123 4042 (24 hours a day) If you need help to understand Call 0300 123 4042 if you would like help to understand this information or need it in a different format. You can also ask to speak to someone in your own language. This information is correct at time of writing. It is for guidance only and is not an authoritative statement of the law 6 Money Advice Unit 0300 123 4040 www.hertsdirect.org/benefits Issue 5
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