What is an IVA?

An IVA is a flexible procedure for debt consolidation in England. It allows a debtor to reduce the amount of his or her debt and also gives protection from creditors and any proceedings they may wish to commence against a debtor.

Is it a loan?

No, an IVA is not a loan, as stated above, it is a legal procedure which helps to reduce the maount of your debt.

How does it work and how is it set up?

A debtor makes an offer to his/her creditors who will accept, amend or reject.

You need to apply to the court and you must be assisted by an Insolvency Practitioner. The proposal must be accepted by seventy five per cent in value of the creditors who are present or represented.

To set up an IVA, a proposal is drafted by the debtor with the assistance of an Insolvency Practitioner setting out the debtor's financial position, assets and liabilities and how they propose to deal with creditors. When the proposal is complete an application for an Interim Order is made by lodging the documents with the Court having bankruptcy jurisdictions in respect of the debtor. This will result in the issuing of an Interim Order which prohibits the commencement or continuation of any legal process against the debtor or his estate until the Nominee considers whether the proposal is realistic and workable.

The NOMINEE will file a report into Court which indicates if, in his opinion a creditors meeting should be called. The Nominee then circulates all the debtors and creditors with the proposal. At the creditors meeting, a vote is held to decide on whether or not to accept the proposal in its present form or with modifications. Seventy five per cent in value of creditors who are present or represented must vote for the proposal for it to be accepted. This decision is binding on all the creditors. The Supervisor (Insolvency Practitioner) appointed at the creditors meeting then proceeds to administrate the proposal and pay the creditors.

What are the advantages of an IVA, versus say, bankruptcy?

There are significant advantages.

• An IVA gives you more say in how your assets are dealt with and how payments are made to creditors.
• You may be able to persuade your creditors to allow you to retain certain assets (e.g. home, car). You will obviously have to act responsibly and flexibly in order to reach agreement with your creditors.
• You avoid the restrictions on trading and on obtaining credit etc. which apply to a bankrupt. (Subject to the conditions of your proposal)
• Because you would not have to pay some of the government fees and expenses which apply to bankruptcy, the overall costs are likely to be less allowing you to pay more to your creditors.
• An Interim Order has the effect that, during the period for which it is in force:-
  • No bankruptcy petition relating to the debtor may be presented or proceeded with.
  • No other proceedings, and no execution or other legal process, may be commenced or continued against the debtor or his property except with the leave of the Court.

The role of the Nominee is to consider the debtors proposal and file a report to the court which indicates if in his opinion a creditors meeting should be called. He will also arrange a time and a place for the creditors meeting. It was originally envisaged that the debtor would prepare the proposal and hand it to the nominee for consideration. In practice the Nominee assists the debtor with the drafting of the proposal to ensure that it complies with the requirements of the Insolvency Act 1986.

All creditors who were given notice of the creditors meeting and were entitled to vote at the meeting are bound by the decision of the meeting.

The SUPERVISER'S role is to implement the Arrangement. The Supervisor will realise the assets of the debtor and make payment of dividends to the creditors in accordance with the proposal.

An undischarged bankrupt may also enter into a Individual Voluntary Arrangement with his creditors. It is better and cheaper to set up an individual voluntary arrangement before bankruptcy but it can be arranged afterwards. The approval of the Arrangement does not automatically annul the bankruptcy.

The Court may do one or both of the following:

• Annul the bankruptcy order by which he was adjudged bankrupt;
• Give such directions with respect to the conduct of the bankruptcy as it thinks appropriate for facilitating the implementation of the approved Voluntary Arrangement.

If you are unsure which step to take to solve your debt problems, ansswer the questions below and one of our professional debt advisers will tell you the options open to you. This is a totally free and confidential service.