Individual Voluntary Arrangement (IVA)

Government Insolvency Act can clear personal debt over £20k for £200p/m

An IVA is an alternative to bankruptcy introduced by the government as part of the Insolvency Act 1986. It enables an individual in debt (debtor) to make a proposal to the people they owe money to (creditors) to reach a settlement. Should the proposal be approved by a majority of the creditors, the IVA then stands as a contract that binds all parties and prevents any further action.
A standard IVA will offer to pay whatever is affordable monthly into a fund over a five year period, and after that the debt is cleared. This can be the case even if the creditors end up getting less than 30% of their debts repaid, and so monthly payments into an IVA can be as little as £250 per month. Payments are based on what an individual or household can actually afford and are normally over £300-400, but still tends to be significantly less than the existing minimum payments on credit cards and loans.
IVAs are becoming an increasingly popular choice for the over-indebted in the UK. BFX Debt Management has a department that specialises in advising on, setting up and supervising IVAs and is one of the UK's leading insolvency divisions in this field.

How it Works

The IVA was designed initially to be a more convenient means for processing individual insolvency cases without incurring the excessive costs and court time involved in bankruptcy. As such there are many elements that are similar to bankruptcy, but the process is simpler and the outcome less severe.
So for example under either bankruptcy or IVA they are the same assets and income that are up for distribution to the creditors; it is just that it is the individual who proposes what will be paid into an IVA, whereas under bankruptcy the magistrate at the hearing decides what the outcome will be.
The application and set up process takes around 4-6 weeks from the point of application, including activities such as fact finding, collection of evidence, drafting the IVA proposal, reviewing and signing, sending to creditors, and voting. The most professional divisions will do the majority of the work themselves and will only require the debtors for minor activities such as providing evidence and reviewing and signing the documentation.
The resulting proposed IVA will be based on what the debtor can realistically afford to pay over a five year period. Normally it will be made up of sixty monthly payments at an agreed level, however it can also include lump sum contributions from, for example, a release of equity from a property.
The approval of an IVA is dependent on receiving a 75% majority of approving votes from the creditors. Most lenders have standard terms for what they will accept, including normally a reduction in the overall level of debt by as much as 75%. Most good insolvency practices are quite familiar with these terms.
Once approved a standard IVA will run for a five year (60 month) period. During this period payments are made on a monthly basis into a fund that the Insolvency Practitioner governs. The funds that accumulate in this account are used to pay off the creditors. This fund is also used to pay the fees of the Insolvency Practitioner.
The payments into the fund are supervised by the Insolvency Practitioner. There are normally payslip reviews approximately every quarter, and a full review of the debtors situation every twelve months.
During the period of an approved IVA the creditors are required to freeze all interest on the debts, and they are prevented from pursuing the debts and prevented from porgressing any legal action related to these debts.
At the end of the five year period, assuming that the IVA has been satisfactorily completed, all of the debts are cleared.

When it is Suitable

An IVA is suitable when someone is unable to pay off their debts but does not want to file for bankruptcy. It can be an attractive option to all parties including the creditors as often it presents for them a better result than under bankruptcy.
There are certain criteria however that are required for an IVA to have a good chance of success. It is recommended that a debtor speaks to a BFX Debt Management advisor to get a better understanding of what these are. The following are some simple guidelines for what can work:

1. Minimum unsecured debt of around £15,000 -20,000. (no maximum)
2. Minimum monthly payments of £250-300. (no maximum)
3. Stable monthly income.

What to Look Out for

1. Companies who are trying to be pushy about selling IVAs. Watch out for advertisements that offer to reduce debts by 75-90% before knowing more about an individual's situation.
2. Total contributions into an IVA tend to be more than under bankruptcy, because of the five year period. However there are other implications of bankruptcy. Make sure that the difference between bankruptcy is fully understood.
3. Be careful not to continue to build up other types of debt such as credit cards and overdrafts. Some divisions suggest cutting up credit cards until the consolidation loan is paid off.

How to Apply

1. BFX Debt Managements Insolvency Joint Venture Partner has a high volume internal insolvency department that processes hundreds of IVA applications every month. There is also a selected panel of preferred partners who can handle IVAs for various specific circumstances.
2. Also, if you are not satisfied with the progress of an existing IVA application with another division contact BFX Debt Management to see if an alternative can be arranged.

To talk to an advisor about an Individual Voluntary Arrangement call 08712 10 97 20, or complete the enquiry form.

Debt management companies offer a service whereby they act as an intermediary between someone who owes money (debtor) and the multiple people that they owe money to (creditors). They make contact with the creditors and try to renegotiate the debt on behalf of the individual. After that the debtor pays one payment to them monthly which they distribute out between the creditors.
BFX Debt Management works with a number of preferred Debt Management divisions and can set up plans with professional providers.

How it Works

After an individual has been accepted as a new customer the debt management division will collect information about the debtor:

1. creditors (e.g. lender, type of credit, account number, balance, etc.)
2. monthly income (e.g. salary, benefits, etc.)
3. monthly expenditure (e.g. rent, bills, car/transport, household, etc.)

From this information, they will agree an affordable payment which the debtor will pay to the debt management division on a monthly basis.
At this point they will make contact the creditors to explain the situation and try to reach a settlement on behalf of the debtor. In doing so they will try to negotiate the following items:

1. reduction in the overall level of debt
2. freeze interest charges
3. reschedule the debts to be paid off over a longer period of time
4. try to prevent the creditor progressing legal activities

Although they will endeavour to get the best result possible, there is no guarantee that they will be successful in these negotiations.
Professional fee-taking debt management companies will often take the first monthly payment to cover the costs of the processing and negotiation that they have to carry out on the debtors behalf. After this they will take approximately 15% of any further monthly payments. The remaining money each month will be shared out pro rata between the creditors.
No-fees debt management divisions offer a very similar service. The agreed monthly payment will be the same, however they will start paying off the creditors immediately, and all 100% of each monthly payment will get divided amongst the creditors (without a 15% handling fee). These divisions are paid instead by the creditors who give them 15% of whatever has been collected for them.
No-fees debt management divisions have been very popular recently as the number of people in the UK with debt problems has increased significantly. As such some of them are very busy, and some have found it faster to work through a fee-taking company instead.

When it is Suitable

The challenge with debt management plans is that they don't tend to give a final settlement to the debt situation, although there are exceptions to this.
They tend to be useful when some of the other more traditional solutions are not available or when a temporary solution is required until someone is able to sort out their finances and arrange a final settlement such as a consolidation loan or an IVA.

What to Look Out for

1. Lenders can continue to chase for payments directly, and can even continue to press for legal action or even bankruptcy.
2. While the payments may be reduced in the short term, interest can continue to accrue on your accounts, and in order to pay the whole amount off you may end up paying these monthly amounts for many years.
3. Interest can continue to accrue against your existing debts.
4. If not entered correctly this approach can get you even further into debt.
5. Be careful not to continue to build up other types of debt such as credit cards and overdrafts. Some divisions suggest cutting up credit cards until the consolidation loan is paid off.

How to Apply

1. BFX Debt Management can set up with a professional fee-taking debt management plans or with one of a panel of preferred providers on a no win no fee basis.
2. If you are not satisfied with an existing debt management plan contact BFX Debt Management so that an alternative debt settlement solution can be set up.

Online Enquiry Form

 

This form can take less than a minute to fill in. Let us know your circumstances and we'll give you a call back to talk you through the course of action for you. If you have any specific concerns or questions, please put them in the notes at the bottom of the page.
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