Individual Voluntary Arrangements – The Pros and Cons

by Julian Donnelly

10th September 2014

This is for general guidance purposes – please seek independent professional advice if you are considering an IVA.

In an IVA, the debtor approaches a licensed Insolvency Practitioner (IP) to propose an IVA. The IP will then draw up a proposal for the unsecured creditors (such as credit cards, personal loans and overdrafts etc) and present it at a pre-arranged creditors meeting. The creditors then have to vote in favour (75% by value of the debt) for the IVA to go ahead. The debtor then makes the agreed monthly payments to the IP and at the end of the term (usually 5 years), the outstanding balance is written off.

The advantages and disadvantages of a “full term” IVA:

Advantages

  • Interest frozen
  • Opportunity to write off some of the debt
  • Usually a period of 60 months (5 years)
  • Creditors must stop chasing if the arrangement is accepted by 75% of the monetary amount of the debt
  • Court ratified procedure, although no need to attend
  • Discreet solution

Disadvantages

  • Regular monthly payments must be met for the period of the arrangement
  • Creditors have the right to vote for or against the proposal
  • Any increase in the equity of a property may have to be realised for the benefit of your creditors during the term
  • Payments may be raised if your income increases
  • Credit rating is detrimentally affected

 

 

The advantages and disadvantages of a “full and final” IVA:

Advantages

  • Interest frozen
  • Opportunity to write off some of the debt
  • Quick process (usually 90 days)
  • Creditors must stop chasing if the arrangement is accepted by 75% of the monetary amount of the voting debt
  • Court ratified procedure, although no need to attend

Disadvantages

  • Lump sum is required
  • Creditors have the right to vote for or against the proposal
  • The settlement figure needs to be at the value of all realisable assets and there cannot be any disposable income available
  • Credit rating is detrimentally affected

 

Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.