IVA detail
More Information on IVAs
An IVA is a contract or deal you make with your creditors (the people you owe money to). It is for people whose only other option is to go bankrupt. It is an alternative to bankruptcy. Under an IVA you tell your creditors that there is no way you can pay back the money you borrowed off them. You tell that your only other option is bankruptcy. Under an IVA you are offering the creditors a deal: you’ll pay back so many pence in the pound in settlement of the debt, or you’ll have no option but to make yourself bankrupt.
A typical IVA works like this: you promise to pay a regular (monthly) sum of money over a period of time (anywhere between 1 and 5 years). The sum of money will invariably be less than the money you owe to your creditors. In return your creditors agree to take this lesser amount you are offering to pay as an end to the matter. Further, they are not allowed to chase you for money anymore. As the law says, they take the lesser amount you are paying as “full and final settlement” of the money they are owed.
Do creditors get all of their money back?
You see the crucial thing with an IVA is that the creditors do not get all their money back, they settle for so many pence in the pound. At the end of the IVA period, assuming that you have stuck to your side of the bargain (ie paid all the money you promised to pay), all of the debts are cleared. The slate is wiped clean.
Are some of my debts ‘written off’?
Under a standard IVA you will pay only what you can afford to pay. Newtomorrow will work this out for you – it’s basically what’s left of your salary or pay packet after taking out reasonable living expenses. This money is then paid into a pot over a period of time (anywhere between one to five years). This pot of money is then paid out to your creditors (people you owe money to). After that your debts are cleared or written off. In many cases the creditors end up getting less than 30% of the money you owe them.
What are the conditions of an IVA?
An IVA is suitable when someone is unable to pay off their debts but does not want to be made bankrupt.
Newtomorrow believe that as a minimum the following conditions should exist in order for an IVA to stand a chance of success:
• Minimum unsecured debt of £15,000 (no maximum);
• minimum monthly payments of £200 (no maximum);
• minimum of 3 creditors (no maximum); and
• you or your partner have a regular income
What are the pros and cons of an IVA?
These are the benefits of an IVA (the pros):
• It is affordable – you only pay what you can afford based on your income and expenditure;
• it avoids bankruptcy;
• interest rates are frozen – your debts don’t get any bigger;
• if you stick to the deal you will be debt free at the end of the IVA period; and
• your creditors will write off a large chunk of the money you owe them.
There are downsides to the IVA though (the cons):
• Can’t borrow money during the IVA period;
• bankruptcy is quicker – between 1 and 3 years.
To help you understand how the Individual Voluntary Arrangement works, here’s a typical example, involving Average Dave. Download Average Dave's PDF
How much does an IVA cost me?
Don’t forget, Newtomorrow do not bill you for the work done. At the meeting of creditors, the people you owe money to vote on your IVA proposal. As part of this process, they agree how much we get paid. You make your monthly contributions and create a pot of cash for your creditors. Your creditors tell us how much are fees will be and we then take our fees from the pot. We do not bill you at any stage. You only pay the contributions you can afford.
So, what happens if you want to enter an IVA?
The whole procedure takes around 5 weeks and works as follows:
• INTERVIEW STAGE – you will speak to a debt consultant face to face. They will run through your finances and explain your options. They will tell you if an IVA is the right choice for you. If an IVA is your best bet, our debt consultant will ask for all the information they require to draft an IVA Proposal.
• APPLICATION STAGE – from the information you have provided we will prepare a draft IVA Proposal. This will state what you own and what money you owe. It will also state how much you can afford to contribute per month under an IVA and likewise how much money your creditors can expect to receive. The Proposal will also state how much we think your creditors will receive if you were to go bankrupt. We will send this draft proposal out to you. You will read it and make sure you are happy with it. You then sign the proposal and send it back to us. If you need to discuss it further you can phone us or we can meet up face to face. Together with the signed Proposal we may ask you to provide us with documents that prove what you have been saying is correct. We might ask for things like copies of your pay slips, statements from your creditors, proof of your living expenses such as gas bills and the like.
• CREDITOR STAGE – when we get your signed Proposal back from you, we will send it out to all your creditors (the people you owe money to) together with our report and recommendation that your IVA should be accepted. Another thing about IVA’s is that they can only be put together by Insolvency Practitioners (accountants that specialise in insolvency work). As professionals, Insolvency Practitioners act in everyone’s best interests (yours and your creditors) – consequently your creditors are guided by what we tell them. We only recommend IVA Proposals that we think will be acceptable to everyone.
• VOTING STAGE – when we send the Proposal to your creditors, we also call a meeting of those same creditors. The meeting will take place about three weeks after we send out the Proposal. At that meeting your Proposal is discussed and the creditors vote in favour of it, or against it. A majority of 75% of your creditors is required to approve the IVA. If it is approved, then all creditors must accept the deal and are said to be bound by it – even if they voted against it at the meeting.
• SUPERVISORY STAGE – if the creditors accept the IVA, an Insolvency Practitioner becomes the Supervisor of the IVA. He writes to all the creditors telling them of the outcome of the meeting and the IVA formally starts.
Types of Individual Voluntary Arrangement
At Newtomorrow we can supervise a variety of IVA’s. The different types of IVA are listed below:
Monthly Contribution IVA - The IVA example above is probably the most common type of IVA. It is known as a monthly contribution IVA. There are several other kinds however, though in reality they are very similar.
Joint IVA - here two people can enter an IVA, for example a husband or wife. This type of IVA is good for people that share their money and have built up the debts between them.
Lump Sum IVA – here the individual (debtor) will offer a one off payment of money to their creditors. In these IVA’s the money normally comes from remortgaging the house or a donation from friends or parents.
Lump Sum and Monthly Contribution IVA – this is a combination of the above and usually allows for a shorter IVA – say an IVA lasting 2 or 3 years, and not the normal five. A typical example would be remortgaging the house to raise a lump sum, followed by three years of contributions.
What happens if you miss a payment?
The IVA is a contract between you and your creditors. They have promised to write off a large proportion of the money you owe them – which, let’s be honest, is a big deal. In return, you have promised to pay a regular sum of money over a number of months. If you fail to do this you will have broken your promise. You will be in breach of contract, or said to be in default.
The IVA proposal will allow you to miss three payments (three payments in total, not necessarily in succession). If you miss more payments than this you will be in default.
It’s not all bad news though. You can miss payments and the Supervisor may not default the IVA. If you are struggling to meet your payments, you should contact your Supervisor. He has certain powers that he can use that will ensure IVA continues (just so long as it does not fundamentally change the original IVA and your creditors are in agreement). As before – if you have problems, call your Supervisor for help. Don’t ignore the issue. All problems can be solved if they are tackled in time.
Will you lose your house in an IVA?
No. An IVA gives a person with debt trouble the chance to keep their house.
An IVA is an alternative to bankruptcy. It is a contract between you and your creditors in which you are asking them not to make you bankrupt because they will get more money back under your proposed IVA.
However, if someone is made bankrupt the Trustee in Bankruptcy can sell the bankrupt’s home. In this way we must consider the value of any equity in the home when putting together an IVA Proposal.