How an IVA Debt Solution Clears Serious Debt: The Individual Voluntary Arrangement – a Bankruptcy Alternative

An increasing number of UK homeowners and professionals are seeking a viable bankruptcy alternative. This has led to more debtor’s turning to an IVA debt solution. According to the Insolvency Service, a seasonally adjusted 29,774 people entered into an Individual Voluntary Arrangement (IVA) during the first quarter of 2009. This represents an increase of 19% compared to just 12 months ago.

IVA Debt Solution

Individuals who request IVA debt advice will always be told that they need unsecured debt amounting to at least £15,000. It simply isn’t financially viable to enter an IVA owing less – a Debt Management Plan may be more suitable for smaller sums of money. There is a legal requirement that an IVA is managed and administrated by a qualified Insolvency Practitioner (IP).

In order that an IVA debt solution can become legally binding, creditors must vote in its favour. A minimum of 75% of creditors (in terms of value) must vote in favour of the Individual Voluntary Arrangement (IVA). Should creditors vote against it, the debtor could be declared bankrupt. However, an amendment and re-vote is a more likely scenario.

If agreed, monthly repayments will be made for a period of 60 months. Payment will be made via standing order and the Insolvency Practitioner will disseminate the proceeds to creditors on an annual basis. At the end of year 4, it is normally expected that a homeowner will remortgage up to 80% of available equity in order that this can also be paid to creditors.

Benefits of an Individual Voluntary Arrangement (IVA)

  • Debt reduction. Up to 70% of unsecured personal debt can be eliminated.
  • Bankruptcy alternative. Provided that repayments are maintained for the full 60 month term, bankruptcy can be avoided.
  • Stops creditor contact. It is a legally binding so creditor contact for repayment is unlawful.
  • Keep property. The insolvent is able to continue his/her homeowner status.
  • Kept private. An IVA debt solution isn’t made public.
  • Employment. It is possible to maintain professional status.

The IVA debt solution is a particularly effective way of maintaining employment and homeowner status. However, an Individual Voluntary Arrangement (IVA) has a 5 year term and a lot can happen in that timeframe – unemployment, poor health and relationship failure. Failing to keep-up with repayments will result in the contributions being used to meet the costs of declaring the debtor bankrupt.