IVA
IVA stands for Individual Voluntary Arrangement. An IVA is a legally binding agreement between the debtor and creditors whereby the creditors agree to write off a proportion of the debt in exchange for affordable monthly contributions from the debtor, over a period of 5 years.
An 'Individual' Voluntary Arrangement by its nature varies from person to person, however the criteria to qualify for an IVA remain the same. Firstly you must have unsecured debts of over £15,000, owed to three or more creditors, and a disposable household income (funds remaining after covering all your essential living costs, such as mortgage/rent, council tax etc) of £180 or more per month.
An IVA contract is brokered on the debtor’s behalf by a Licensed Insolvency Practitioner (IP) who will assess the situation and approach the creditors. He or she will attempt to negotiate a settlement with the creditors, or at least the majority of them. For the creditors, even a reduced payment of up to 75% of the original loan amount could be a better option for them than the expense of pursuing a claim for bankruptcy. During the repayment period (normally 5 years), creditors are not permitted to contact, or take legal action against the debtor. All interest & charges are also frozen and what the debtor can't afford to repay will be written off.
It is possible to apply for an IVA if you are a home owner without risking your property, providing you keep up with your repayments. Towards the end of the agreement you will need to get two valuations on your property. If equity is available you will be required to re-mortgage your property and pay up to 85% of the equity, depending on circumstances, to your creditors. If you are unable to re-mortgage your property, you may be required to make an extra 12 months of repayments on top of the initially agreed period.
IVAs can be a better alternative to bankruptcy because they are less restrictive, and offer a greater level of confidentiality. For example IVAs are not published in newspapers and agreeing to one will not affect your profession. Some jobs have employment contracts which prohibit bankruptcy - for example the Armed Forces or Police Force, but an IVA will not affect your job. You can also still hold public office or act as a company director during an IVA, positions prohibited in bankruptcy.
The advantages of IVAs exceed the disadvantages considerably. However, once you have agreed to an IVA you will be obliged to make the contractual payments, contribute 50% of any overtime and up to 100% of windfalls or inheritances, depending on circumstances, during the period of the IVA. Although not published in the newspaper, IVA information is available on a public register and is likely to appear on your credit file.