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An IVA is a formal court agreement between lender and borrower. The debtor
will promise to pay a set monthly sum for between three and five years in
return for a portion of the debt being written off. The procedure is
flexible and its exact nature varies from case to case depending on the
terms of the proposal.
You should be able to afford to repay at least £200 a month and if you
are likely to struggle to raise that figure throughout the period, you
should look at other options.
With the help of a Licensed Insolvency Practitioner, you put together a
proposal and work out what you can realistically afford to pay back over a
period of time, typically 5 years.
If three quarters of the companies you owe money to agree to your proposal,
all your debts and the future interest on them will be frozen at the time
the IVA proposal is agreed.
Your creditors will usually forego some of the debt you owe and at the end
of the agreed period these debts are written off provided you have kept up
with the negotiated monthly IVA payments.
By entering into an IVA you may be able
to order your affairs in a way which benefits your creditors but would not
be possible under bankruptcy: for example, by an orderly disposition of
assets, introduction of third-party funds, contributions from future
earnings, or debt rescheduling.
The agreement is overseen by a supervisor, and is binding on all creditors,
whether they voted for it or not.
Only a Licensed Insolvency Practitioner can act as supervisor of an IVA,
except in cases where the debtor is bankrupt.
An IVA cannot affect the rights of secured (e.g. mortgages) or preferential
creditors except with their express agreement.
The IVA’s benefits are its flexibility, its lack of publicity compared
with bankruptcy, and the fact that it may be cheaper to administer for the
creditors than a bankruptcy and is therefore likely to increase returns to
the creditors.
The procedure, introduced in the 1986 Insolvency Act, has been growing in
popularity and now accounts for about one in three personal insolvencies.
Process
1. Proposal
Prepared by debtor with assistance from a licensed insolvency practitioner.
2. Interim order (optional)
Application to court. Court may stay all other legal procedures. No
bankruptcy petition can be heard, nor other legal action against debtor or
property. A debtor may not apply for an interim order within 12 months of a
previous one.
3. Nominee’s report
Nominee must be a licensed insolvency practitioner. If nominee’s report is
adverse, any interim order ceases. If nominee’s report is positive,
recommends meeting of creditors.
4. Creditors’ Meeting
Held between 14 and 28 days of nominee’s report. Your proposal, statement of
affairs, and nominee’s report are considered by creditors. An IVA will be
accepted provided more than 75% of the creditors by value, vote in favour.
If this is achieved, then the IVA
is accepted and all unsecured creditors will be bound by the IVA.
Supervisor appointed (must be a licensed insolvency practitioner).
5. Duties of Supervisor
Reports to court. Implements proposals. 6. Completion
Once the agreed payments have been completed the remainder of your debt
will be cleared, leaving you debt free. |
