Individual Voluntary Arrangements is a legal procedure that helps people in debt from paying back their debt. This arrangement is made between debtors and creditors on the terms of repayment. Both the creditors and debtors must be in a compromise of the conditions. IVA is part of the Insolvency Act 1986. This is a legislation that was meant to protect individuals with financial problems. Individuals apply for IVA to avoid being declared bankrupt.
Bankruptcy is a situation many people don’t wish to be in. This is why they prefer to go for the IVA process which is fair. Debtors can negotiate their own terms of repayment as compared to bankruptcy where decisions are made by the court. Additionally, IVA ensures the agreement is made as per the debtor’s ability to repay. He only pays the what he can afford but he should ensure he never miss any monthly payment.
Who can apply for an IVA?
Anyone with the following characteristics can apply for an IVA:
They should be employed. Self-employment also counts.
They must have at least three lines of credit
They must have a debt who value is greater than that of his current possessions.
Effect of IVA on Credit Rating
When an individual applies for an IVA his credit rating will automatically reduce. This is because the debtor’s money goes to the monthly payment as agreed by the creditors and the rest is budgeted for other living expenses. This reduces the ratings of the debtor but once the arrangement is over its possible to for the credit ratings to be increased.
IVA approval process
Before the process begins, a proposal must be written by the debtor with the help of an Insolvency Practioner. Important documents should be presented like hire purchase documents and documents of his house. The proposal states the conditions and repayment plan that the debtor wishes to use. Once the proposal is written it must be approved by creditors in a meeting in which the debtor is to be present. Once 75% of the creditors agree, then the process is approved to begin.
Role of IP in the Process
- The IP acts as a supervisor in the process from its initiation to its end.
- He takes care of anything related to paper work
- He informs relevant parties about the completion of the process.
Debts included IVA
There are specific debts included in IVA process. They include:
- Unsecured loans like bank loans
- Useful Bills that are from previous properties
- Family and friends loans
IVA doesn’t affects the assets of the debtor because they are considered secured assets.
Advantages of IVA
Home Protection. There is no more risks of people losing their households because IVA has reasonable terms. This generates some tranquility of mind for the debtors hence helping them concentrate on other living expenses like rent. Unlike in bankruptcy where an individual is not assured of the protection of their homes.
Affordability. IVA ensures that repayment agreement must be made according to the debtors’ ability to repay. They are not pressured to repay huge amounts if they can’t afford to do so. This advantages the debtor because they will still be having some income left even after paying the monthly agreed amount.
Stability. IVA is a legal and formal agreement. Creditors are not allowed to change the terms of the agreement at their own free will since it requires a legal process before any agreement can be changed. This benefits the debtor as he will be free from surprised attacks from the creditors.
Disadvantages of IVA
Reviews of finances. There are reviews done annually on the debtor. These are meant keep track of the progress of debtor’s income. If his monthly earning has increased, the amount to be repaid is also increased. This is a very important condition to be fulfilled in an IVA arrangement
Contract that is legally binding. A debtor is required to be familiar with all the terms and conditions of an IVA. Example, IVA can be cancelled if a debtor fails to pay one monthly fee. This a rule that guides the process.
New credits. Once in an IVA process its impossible for the debtor to apply for any credit until the process ends.