PHILIP A BECK

Chartered Accountant
Licensed Insolvency Practitioner

41 Kingston Street, Cambridge CB1 2NU
Tel: 0800 1953605 (Free call) or 01223 367022
Fax: 0844 5048737
email: pbeck@ntlworld.com

IVA

How do I know whether an IVA is the best answer to my problems ?

There are no rules cast in stone, but suitable criteria as to whether an IVA would be best for you could be summarised as follows:

A level of unsecured debt such that it would take at least 6 years from regular monthly payments to clear your debts without allowing for charges and interest.  As the minimum level of monthly payment is 300 this means that you need a minimum level of unsecured debt of 20,000;

Ability to make consistent payments towards the IVA from your earnings of at least 300 per month for at most 5 years or until earlier full payment (the actual payment rate depending upon your domestic budget);

If being a homeowner, a level of equity (if any) in the property such that you would not be able to clear or substantially clear your unsecured debts by selling or remortgaging the property;

A forecast eventual dividend to creditors of at least 25 pence in the pound after costs;

A committed desire to avoid bankruptcy.

The above criteria are important as IVAs are not cheap, and must be paid for out of money that would otherwise go to creditors.  At below 300 per month the IVA would not be financially viable for the IVA provider as the allowable costs are related to the amount being paid in.  A debt management plan would be viewed as more appropriate if the debt could be paid off in 6 years or less (some creditors consider as high as 10 years a DMP is more desirable), as, under a DMP, creditors would not suffer any write off of their debts.  If, for instance, your debts were as high as 50,000 but you could afford 800 per month, then creditors would prefer the DMP option as this represents 62.5 month's payments, being just over 5 years.

The dividend requirement of 25 pence in the pound after cost is also important as creditors have seen so many IVA proposals on their desks they do not want to be bothered with IVAs that only offer a minimal return.  This having been said, there is a new protocol that urges creditors to accept IVAs where the dividend forecast is below this level if the IVA complies with the protocol, however, the protocol is voluntary and it cannot be guaranteed that all creditors will accept a protocol-compliant IVA with a dividend forecast below this.

Homeowners need to consider how much equity they have in their properties.  An IVA will not be accepted if the level of equity is so high that by remortgaging or selling it the debts would be cleared or substantially cleared.  Don't forget that for the creditors an IVA is an alternative to bankruptcy, and they will only approve it if they get a better return from the IVA than from bankruptcy.  Under bankruptcy, houses with significant equity stand to be sold in as little as one year after the appointment of a Trustee, therefore if the creditors can see themselves getting paid in full under bankruptcy they will not approve an IVA offering a lower return.

The commitment to avoid bankruptcy is important.  As creditors see an IVA as avoiding the stigma (and restrictions) of bankruptcy, they expect a better return from an IVA than from bankruptcy.  Consequently the usually accepted period for an IVA, which creditors are always likely to insist on, is 5 years, compared to only 3 years for which you might be liable to contribute if you were adjudged bankrupt instead.

An IVA should not be entered into lightly.  If you fail to maintain the payments half way through then the Supervisor may be obliged to petition for your bankruptcy, which would mean all that time and money had been wasted.  You should only propose an IVA if you are confident that you can adhere to it.  Even if there is no obligation to petition for your bankruptcy, the entire remainder of your debts would become resurrected upon the failure of your IVA and you would lose the benefit of the debt write-off after 5 years.

IVAs are not suitable for people living on state benefits as their main or only source of income, as the level of these benefits has been set to allow solely for living expenses, and not to leave spare funds for the repayment of debts.

Philip Beck is a Chartered Accountant and Licensed Insolvency Practitioner operating since 1996 with substantial experience in undertaking IVAs.

No approval, no fee IVA, click here for details.  Pay nothing until creditors approve your IVA proposal.

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IVA Questions and answers.

I have serious debt problems. What are the options ?

How do I know whether an Individual Voluntary Arrangement (IVA) is the best answer to my problems ?

How do I work out how much I can afford to pay per month ?

OK I'm considering an IVA . How does it work ?

Do I have to attend meetings, or can this all be done by correspondence ?

What do creditors expect from it and how likely is it they'll accept it ?

Are all of them forced to accept the majority decision ? I've got one hell bent on making me bankrupt.

What happens if they don't like the deal ?

If the IVA is rejected, do I owe you anything ?

I've buried my head in the sand, now I've got a bankruptcy petition hearing next week. Is there something that can be done at this late stage ?

Will it really write off all of my debts ?

Will I live in poverty for the duration of the IVA ?

What if I win the lottery or get a big pay rise ?

Will it appear in the newspapers ? Will people know about it ? Will I ever be able to get credit again ?

Is an IVA more expensive than just going bankrupt ?

What will happen to my house, furniture, car and domestic effects ?

I run a business. What will happen to my business ?

I'm a professionally qualified person. Will I lose my livelihood ?

My partner has no debts, and I'm living with him/her. Will he/she have to contribute to the IVA ?

My partner and I have joint debts. Can we lump them all together in the same IVA ?

How do you get paid ? What does this all cost ?

There are plenty of Insolvency Practitioners or debt advice companies around. Why should I instruct you ?

What happens if I'm unable to keep up with the payments ?

What happens at the end of the arrangement ?

What other web sites do you suggest I look at for bankruptcy/IVA advice ?

Please note that this site deals only with personal insolvency law in England, Wales and Northern Ireland. By law, only a Licensed Insolvency Practitioner can undertake an IVA for you. If you need an Insolvency Practitioner in Scotland, visit The Institute of Chartered Accountants of Scotland.   Interested in members voluntary liquidation ?

Copyright © Philip Beck Insolvency Practitioner, Cambridge UK, 2005. Bankruptcy and individual voluntary arrangements explained. Free IVA Advice. How to avoid bankruptcy with an Individual Voluntary Arrangement. Debt, debt advice, debt management, debt consolidation.