When people are unable to repay their debt within a sensible period of time they may need to enter an insolvency debt solution like an IVA.
The individual voluntary arrangement is only available to people living in England, Wales or Northern Ireland, in Scotland the equivalent is a trust deed.
The IVA is a formal debt solution which will freeze interest & charges while also stopping further action however creditors can object to the solution.
What Is An IVA?
The person in debt puts forward a proposal to their creditors to repay a percentage of their debt over 5 years through an insolvency practitioner. Any debt still remaining at the end of the IVA is written off and the solution is finished.
If someone comes into additional money during the IVA they will likely be made to pay it towards the debt and fees for managing the solution. Additional money could include winnings, extra income, inheritance and much more.
The insolvency practitioner is responsible for putting forward the initial proposal, registering the IVA, recouping money for creditors and more.
The insolvency practitioner acts as a third party to help both the creditor and debtor resolve the debt problem by repaying as much as is reasonably possible.
Entering An IVA
The first step in entering an IVA is to contact a debt advice organisation who can assess whether it’s the best possible debt solution available.
Once the IVA has been confirmed as the best solution an insolvency practitioner will need to be contacted and all necessary paperwork collected.
The insolvency practitioner will draft the proposal and each creditor will receive it by mail advising they have 5 weeks to register an objection.
So long as 75% of the creditors don’t object to the IVA proposal it will begin and monthly payments will be taken by the insolvency practitioner.
There are some criteria someone should meet before they are able to enter the IVA, which the debt advice organisation and IP will check.
- Must have disposable income of around £150 per month
- Must have unsecured debts of around £10,000
- Live in England, Wales of Northern Ireland
It’s also the responsible of the insolvency practitioner and debt advice organisation to foresee issues which could make the IVA the wrong solution.
If someone is due to come into money within the 5 years of the IVA or other things are due to change it’s important these are noted before the solution begins.
Entering an IVA will place a default on the credit rating of the debtor, which will take 6 years to be removed and could affect the ability for them to get future credit.
If someone does come into money they could be made to repay the full debt as well as fees for managing the IVA for the entire 5 year period.