An Individual Voluntary Arrangement (IVA) is a debt management tool available to residents of the UK. With an IVA, a debtor and his or her creditors come to an agreement regarding the repayment of all or a portion of existing debts.
There are several benefits as well as a few drawbacks to using an IVA to manage debt.
An IVA is only suitable for someone who can afford regular debt repayments. Only an authorized debt specialist called an Insolvency Practitioner (IP) can establish an IVA and this individual charges the debtor a fee.
This may include a charge for establishing the IVA after negotiating repayment with creditors and an ongoing monthly fee for managing the IVA, which may be deducted from each monthly debt payment.
On the other hand, an IVA is a flexible debt solution because it can be used for any level of debt and there is no minimum or maximum level of repayment required. IPs can help debtors determine how much they can afford to be repaid through an IVA, possibly reducing the debt.
While an IVA is in place and sometimes while it is being established, creditors are prohibited from taking action against the covered debtor. In addition, interest and other charges on the debt usually stop.
The IP contacts creditors directly during the IVA establishment phase. This individual also arranges and represents the debtor at a meeting with creditors to have them accept the IVA. Creditors are never obligated to accept an IVA.
In order for the arrangement to go into effect, creditors representing more than 75 percent of debts must be in agreement with it. However, if they do so, the IVA will apply to all creditors, even those that did not agree to it.
Debt payments under an IVA are streamlined for the debtor because this individual makes only one payment to the IP, who then distributes the correct amount to each creditor per the IVA.
However, the debtor must make monthly payments to the IP as agreed or creditors may cancel the IVA. Once an IVA is cancelled, creditors may take action against the debtor to recoup the money they are owed.
This may include taking the debtor to court or making the individual bankrupt.
A drawback of an IVA compared to an informal debt solution is the fact that an IVA is made public. It appears on the Individual Insolvency Register, which credit reference agencies use to update credit ratings of consumers.
Therefore, it will be more difficult for an individual to get a loan, make purchases on credit, and open a bank account while an IVA is in effect.
If the financial situation of the debtor changes, the IP may be able to renegotiate lower payments with creditors. After the total amount agreed upon under the IVA is repaid by the debtor, the IVA usually ends.
The IVA will be removed from the Individual Insolvency Register three months after it ends, but credit reference agencies may maintain information for a longer time.