Consumers with particularly large debts have a range of options available to them when it comes to attempting to clear them and lead a normal life again.
Some are more suitable for particular people than others, so it is important to take advice before proceeding with any particular debt solution.
One of the options that debtors might be thinking about taking up is an Individual Voluntary Arrangement (IVA).
These agreements are often seen as an alternative to bankruptcy and are usually based on the notion that the consumer has some money to give to non-priority creditors every month.
The IVA process
Debtors looking to go down the IVA route are usually recommended to take advice first before formally going ahead with the solution.
Once they are happy that this is what they want to do, they ask an insolvency practitioner – who may be a solicitor or other legal or finance professional – to begin the proceedings by drawing up an IVA proposal and applying for an interim order through the county court.
This interim order ensures creditors cannot begin the bankruptcy process against the debtor while they are setting out the terms for a possible IVA.
The IVA proposal itself will detail exactly how much money the consumer intends to pay back and how long it will take for the debt to be cleared.
Debtors may be able to set out requests for longer deadlines or other concessions in this document.
The creditors are then called to a meeting to discuss the terms and see whether they agree to them.
Even if one or more of the creditors do not agree, the IVA can still go ahead as long as those who are in agreement represent at least 75 per cent of the overall debt stated in the IVA proposal.
Creditors can request changes to the proposal before they agree to it. These could include amendments regarding the size of the repayments or the length of the repayment period, among other things.
After an IVA has been agreed, the insolvency practitioner is able to officially set it up and the debtor begins making the repayments under the watchful eye of the practitioner.
IVAs and bankruptcy: what’s the difference?
IVAs are sometimes discussed at the same time as bankruptcy as, in some respects, they can be quite similar.
Both involve forming an agreement with creditors over the debt owed, although in the case of bankruptcy all dealings are made via an Official Receiver, who actually takes charge of the debtor’s money, possessions and property during the proceedings.
Bankruptcy is normally one of the solutions presented to those who do not have any money to repay any of their debts with.
Instead, any property and valuable possessions that they own is likely to be sold to help cover some of the debt.
Those who file for bankruptcy will be unable to apply for credit during the period of the bankruptcy order. An IVA is listed on the person’s credit file, however – which might limit them from obtaining funds such as a mortgage or loan in the future.
People made bankrupt may also find that they are unable to carry on working in certain professions and that they are unable to keep the bankruptcy a secret because details of those who undergo such proceedings are allowed to be made public.
Why take IVA advice?.
It is strongly recommended that debtors consider taking IVA advice before proceeding down this path.
IVAs can incur fees when it comes to appointing an insolvency practitioner and getting the relevant paperwork organised, which might not help the person’s overall financial circumstances.
There may also be other options that are better suited to the debtor – particularly if they are unsure how exactly they would fund any proposed repayments to creditors.
Despite this, for some people IVAs might be the perfect solution if they cannot see any other way out of the debt but are willing to take steps to pay off as much of the money owed as possible.
They should be prepared to keep to a tight budget, however, and be careful not to take up their old spending habits again once the IVA is over.
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