What It Is & How to Get One

IVA stands for Individual Voluntary Arrangement. This legal alternative to bankruptcy allows an individual to pay back creditors at lower terms while avoiding bankruptcy. The UK government established this as part of the Insolvency Act 1986. When an individual gets to the point where full repayment to creditors is not possible, they can make the decision to offer an Individual Voluntary Arrangement with their unsecured creditors. The first step is visiting an Insolvency Practitioner. That practitioner works with the individual to determine if an Arrangement is appropriate for their circumstances.

If the Insolvency Practitioner agrees that the IVA is appropriate, the next step is evaluating the debtor’s individual circumstances and creating the proposal. The proposal includes a full listing of the debtor’s income and expenditures. It also indicates the amount left over for repaying creditors. The proposal also includes the proposed repayment schedule, usually up to five years. A full explanation of the circumstances leading to the proposed Arrangement gives the creditors the background information they need. Explanation of the debtor’s assets also receives focus.

The next step in obtaining an IVA is calling a meeting of the creditors. The Insolvency Practitioner contacts the creditors and sends them a copy of the proposed Arrangement. At that time, the Practitioner also schedules a meeting. At the meeting, the creditors and their representatives can make proposed changes to the agreement. Common changes include minimum return amounts, payment default circumstances, income increase changes, and restrictions on the debtor’s credit during the Arrangement. If 75% of the creditors agree to the Arrangement, the IVA becomes valid and binding. An Arrangement will need a supervising Insolvency Practitioner. Part of the monthly payments goes to the Practitioner in the form of fees. That amount is also part of the Arrangement that the creditors approve. If 75% of unsecured creditors agree to the Arrangement, then all of the creditors remain bound by it.

An IVA does not cover secured creditors such as those that provide car loans or mortgages. Those debts remain outside the Arrangement. As long as the debtor makes the payments, the creditors cannot take action to recover the debt outside the Arrangement. If the debtor defaults on their payments, the creditors may force the debtor to bankruptcy. If the debtor successfully completes the repayment schedule of the Arrangement, the creditors must write off any remaining amounts and cannot pursue the debtor for any other recompense. Companies can also opt for a Company Voluntary Arrangement similar in terns to an Individual Arrangement.

Spencer Gordan is a finance consultant who is currently researching the IVA.