What is an IVA?
IVAs (Individual Voluntary Arrangements) were originally introduced as business solutions for those companies that were struggling to survive in the 1989 / 1990 recession and allowed them to keep trading, provided the terms of an IVA agreement were maintained.
It is crucial that you get the correct IVA Information when considering or entering the agreement. Make sure that you fully understand everything that has been explained to you, especially if you own a property or appear to be paying less than you should. The reason for this is that it is almost certain that you will be tied into the IVA for more than five years.
Under the agreement, a specified amount would be paid on a monthly basis to a Trustee who, in turn, would distribute the funds to the various creditors. The key point is that an asset i.e. the company, was protected and this allowed the company to keep trading, thus avoiding liquidation and a loss for all parties.
Over the course of time, IVAs evolved to protect other assets, most notably properties in positive equity, but also other assets such as share portfolios, expensive cars, paintings, etc. In their purest form, IVAs are effective protection devices that allow people to retain control of their assets, provided they meet the terms of the IVA agreement.
Where this all went wrong is that IVA companies began to recommend IVAs to all and sundry, regardless of whether they owned a property or indeed, had any assets at all. Suddenly, people living in rented accommodation and holding down everyday jobs i.e. not running a business, found themselves tied up in an IVA for five years.
The reason for this is the substantial fees involved in setting up IVAs, often amounting to £11,000.00 plus. The IVA ‘factories’ worked out that it was far more lucrative to enter people into IVAs that recommend bankruptcy, knowing full well that they would have captured most of their set up fees within 18 months of the IVA commencing.
The simple truth is that for those people who ‘have nothing to lose’ i.e. living in rented, everyday jobs, properties in negative equity, etc bankruptcy is a far better solution. Not only are you released completely debt free within 12 months, but in most cases there are no monthly payments at all. You don’t lose your household possessions, in most cases you can keep your car and there are no issues with having a bank account.
Some interesting facts about IVAs and IVA Information
- IVAs are intended to protect assets e.g. properties, businesses, etc. A property in negative equity is not an asset and is not lost in bankruptcy.
- People living in rented accommodation and holding down everyday jobs have little use for an IVA.
- IVA companies charge an average of £6500 to set up an arrangement, but this can rise to £12,000 – £14,000 in some cases.
- The above fees are added to the IVA upfront, thus effectively removing the original benefit of having part of the debt eliminated ‘Using Government Legislation’.
- The first 20 payments of any IVA go directly to the company administering the IVA. Not a penny goes to the creditors.
- There is little difference between an IVA and a Bankruptcy in terms of what it does to your credit rating.
- On the Insolvency Register, IVAs and Bankruptcies are listed together and are viewed by the business world as one and the same.
- However, people are often released from Bankruptcy after 6 – 8 months, whereas an IVA ties you in for 5 – 6 years. If you own a property, the minimum term for an IVA is six years.
- The longest period you can remain in bankruptcy is 12 months.
- Which begs the question: why remain in an IVA for 5 – 6 years when you can be in and out of bankruptcy in a maximum of 12 months?
Perhaps the most significant point when considering whether to leave an IVA is that your financial circumstances are reassessed. It is often the case that people’s financial positions have worsened since entering the IVA and this is recognised by the court. The end result is that there is often no monthly payment – or a greatly reduced one – following bankruptcy.
Please remember, you have the right to leave an IVA just as you had the right to enter into it in the first place!
Key Points of Bankruptcy
- It is a civil process, much the same as a rent dispute or a divorce
- At no stage of the process does anybody visit your home
- You do not lose any household furniture or personal items
- You do not see a Judge on the day you go to court
- Your name no longer appears in local newspapers
- The Courts treat you fairly and have no interest in making money out of you
- You are allowed to keep vehicles within reason (£1,000 is the threshold)
- You are allowed to have a bank account like everyone else