This is an arrangement between yourself (the debtor) and your creditors. It is a formal procedure under the Insolvency Act 1986 which is supervised by a licensed insolvency practitioner. The supervisor has a duty to ensure the debtor adheres to the terms of his/her arrangement.
Under the arrangement the debtor repays creditors a percentage of their debt over a period of generally up to five years. Secured creditors usually choose not to participate in an IVA.
The repayment is achieved by the debtor making voluntary contributions from monthly income, after the deduction of reasonable living expenses and/ or through the sale of assets. The supervisor holds these funds for the benefit of creditors and distributes them at intervals set in the proposal. The funds are distributed to creditors on a pro rata basis.
A proposal for an IVA has to be approved by in excess of 75% of creditors who vote. Creditors may choose to accept, modify or reject a proposal. Voting is according to the value of creditors claims, not the number of creditors. Once approved, the proposal is binding on all creditors of the debtor regardless of whether they voted against the proposal or chose not to vote.
Advantages of an IVA
- If an interim order is necessary this will prevent further action by a creditor, subject to the leave of the court.
- Once approved, an IVA binds all creditors.
- The debtor retains control of assets as they do not automatically vest in the supervisor. Only a proportion of debts may be paid back and they are not subject to interest.
- A debtor can remain as a director of a limited company. Certain professions permit their members to retain membership which would not be the case in bankruptcy.
Disadvantages of an IVA
- The period of an IVA can be up to five years. Creditors will normally require a higher return than under bankruptcy and this is often achieved through longer repayment periods. Bankruptcy generally lasts for up to one year, although payments under an Income Payments Order last for three years.
- There is no guarantee that the proposal will be accepted by creditors. Creditors may seek to modify the proposal and place more onerous obligations on the debtor.
- Should the debtor fail to comply with the IVA, the terms generally provide that the supervisor must petition for the bankruptcy of the debtor.
To access information on a range of debt solutions, please visit www.gov.uk/pay-off-debts
Please go to the following link to find further information – “In Debt – dealing with your creditors”
Director of Recovery and Restructuring
0191 256 9500