Bankruptcy is perhaps one of the most difficult things one can go through. Thankfully, there is an alternative to those who wish to avoid this option and it is an IVA (Individual Voluntary Arrangement).
IVA and bankruptcy
An Individual Voluntary Arrangement and bankruptcy are not mutually exclusive. You may go for the IVA option after being declared bankrupt. If an IVA is then granted, the debtor can go to Court and apply to have the bankruptcy order annulled. In this case, IVAs can only be sought while the bankruptcy is still unreleased. If an IVA is being sought after a bankruptcy order had been filed, it then becomes possible to nominate an official receiver to oversee the arrangement.
In the UK, Individual Voluntary Arrangements were set up by the government and is governed by Part VIII of the Insolvency Act 1986. This act constitutes an official debt repayment proposal that is given to creditors through an Insolvency Practitioner. Most of the time but not always, the IVA will have only claims from unsecured creditors which means that the rights of the secured creditors remain untouched for the most part.
An Individual Voluntary Arrangement is a contractual agreement with creditors and so its terms can be flexible depending on an individual’s particular situation. It takes into account factors like their income, capital and other assets, any third party payments or all of these combined.
A debtor who has an adequate amount of money left over after priority creditors have been paid off and their own basic needs have been provided for may be able to organize an Individual Voluntary Arrangement. Another alternative for debtors who owe manageable amounts is a debt management plan which can be drawn up for them by independent financial advisors.
IVA Pros and Cons
An Individual Voluntary Arrangement has advantages and disadvantages when compared to other debt solutions. One advantage is that it takes away the stigma of being declared bankrupt and also remains private between a debtor and creditor. In the UK, bankruptcy is not put in the local paper but only the London Gazette, however, with both options, debtors are publicly listed on the Personal Insolvency Register and credit reference bureaus record it and both stay on file for 6 years.
Also, an Individual Voluntary Arrangement based on income can be valid for up to 5 years but the length can be variable. A bankruptcy declaration on the other hand will usually be discharged after a year or even less if there is eligibility for an early discharge. An Income Payments Agreement or Order in bankruptcy which depends on disposable income lasts no more than three years but the payments will usually be lower than under an IVA based on income.
Individual Voluntary Arrangements and New Credit
Also, unlike bankruptcy, an IVA places no statutory restrictions on a debtor that inhibits their having access to credit. However, in the UK one declared bankrupt is allowed by law to obtain credit of up to £500 without having to disclose their bankrupt status. Following the discharge of bankruptcy however, one is allowed by law to obtain credit.
Another disadvantage of bankruptcy is that business partnerships are dissolved and a debtor is prohibited from working as a company director. If self employed, you will have to disclose their bankrupt status if applying for credit and Lenders may ask, but those with an IVA are not required to declare it.
IVA Double Fees
A disadvantage with an Individual Voluntary Arrangement is that two fee payments are required by most Insolvency Practioners before they begin to process your case, but both are included as part of the arrangement and are counted as part of the monthly payments made towards the arrangement. The fees do not impact the total amount payable but they reduce the final amount that the creditor anticipates they will receive from the IVA. It is because of this that the Insolvency Practitioner has to tally their fees with voting creditors before it can be accepted.
Another advantage of an Individual Voluntary Arrangement is that all the unsecured creditors are bound by it even though they did not agree to it. They cannot take action to recover the debt but can submit a claim in the IVA to be paid through the Supervisor. The biggest advantage over bankruptcy would be that the debtor retains home ownership and options like remortgaging a property can be explored but only with the owners consent.
What happens if it fails?
Should an IVA fail because an individual fails to make repayments as agreed, bankruptcy will become a real possibility. The amount owed will also go up because creditors will add interest and charges to the debts from the date of the creditors meeting to the date of failure at the rate of eight percent per annum. However, for all the advantages it offers, an IVA is an option worth going for and making a hearty go at.
How do I apply for an IVA?
To apply simply give us a call on 0800 043 2027 and speak to one of our dedicated Money Advisors or use our free call back facility here.