What is an IVA and What are the benefits of entering into an IVA

What is an IVA, An IVA should only to be considered if you have got assets to protect or are in employment that will be affected by you entering into bankruptcy (check your contract of employment).

• Your assets are protected in an IVA.
• Up to 70% of your debt may be written off using Government legislation
• You may still be able to get credit on personal household goods and services, or even, if you are self-employed, for business goods and services. You may also be able to re-mortgage your home – although since 2008 this has become increasingly more difficult.
• Some of the problems which may arise when going bankrupt are avoided. For example, you may avoid losing your home if there is equity in it. However, you could face these problems with an IVA if the creditors vote to include these restrictions in an IVA. If you are thinking about an IVA then it is worthwhile having the agreement checked by a 3rd party before committing yourself to such an agreement.
• An agreement may be reached limiting the liability for interest.
• Creditors who do not agree with the scheme will be bound by it if the majority vote (Namely 75% of the total amount of debt) to the proposal being made at a creditors’ meeting. Creditors cannot then take further action against you if you comply with the requirements of the arrangements.
• Creditors can still claim tax relief against the bad debt as they can with bankruptcy.

What are the disadvantages entering into IVA?

• Although 70% of your debt might be written off, a large percentage of this is added back in IVA set up fees.
• IVA fees can range from anywhere between £5000 – £13,000 depending on the amount of debt involved.
• You may have to pay more to creditors and for much longer than you would do if you became bankrupt.
• For example, you may have to volunteer to pay regular contributions from your salary over a period longer than three years in order to make the arrangement attractive to creditors.
• Your home and assets may still be at risk. (There is a review conducted in the fourth year of your IVA that can ask for equity to be released from your property).
• If the IVA fails, you can still be made bankrupt.
• All IVAs are recorded in a public register which may make it difficult for you to apply for credit in the future. You are still classified as bankrupt as you are unable to pay your debts as they fall due.
• Failure to re-mortgage your property in the 4th year often results in you having to remain in the IVA for a 6th or even 7th year
• You will probably need to spend more time with an insolvency practitioner working out how to realise your assets than you would spend with a trustee if you became bankrupt. The costs of paying an insolvency practitioner are high.
• If you are in certain professions, for example, a solicitor, entering an IVA may mean that you can no longer practise, or may practise only subject to certain conditions.
• A creditors’ meeting cannot approve of an IVA which affects the rights of a secured creditor unless that creditor agrees.
• IVAs do not end in automatic discharge (unlike most bankruptcies).

Speak to us at Bankruptcy UK

Before entering into an IVA, we strongly suggest you contact us to discuss whether this is indeed the right solution for you. If it is, we will then direct you to our appointed Insolvency Practitioner, who will happily discuss all the elements of an IVA. If an IVA is not the right solution for you, we will ensure that you are given the best advice possible on a more appropriate solution.