The detailed process of Individual Voluntary Arrangement:
Individual Voluntary Arrangement (IVA) is one of the many debt management solutions available to individuals in England and Wales. IVA is normally used when the only other option left is bankruptcy and individual wants to avoid the bankruptcy. IVA can prove to be very useful tool in such circumstances and it helps the individual get adequate amount of time to pay debt without going bankrupt and losing house and other property. IVA is also recognized by the constitution of UK (insolvency act 1986).
There are certain merits and demerits of IVA which must be kept in mind before going for this option but let’s briefly discuss some of the most important advantages for individuals. First of all it helps to avoid bankruptcy and as a result individual can still hold his or her house and most of the other equity. The creditors usually write off some portion of debt and remaining is paid in monthly installments of 5 to 6 years. The individual can also avoid most of the publicity made in case of bankruptcy. The major drawback is of following strict regulations and continuous review of all the income and expenses during the whole IVA period.
Most people don’t have the required business knowledge to understand the concept or process of IVA in detail. But the basic information is necessary to take the initiative and then correctly decide the appropriate option. So, here we have tried to come up with easy terms and wordings to explain IVA process in the easiest possible way. This article explains in-depth process of Individual Voluntary Arrangement.
You must read carefully and understand these steps in order to become aware about Individual Voluntary Arrangement. So, let’s study the necessary steps in IVA process.
1) Initial Stage:
Individual Voluntary Arrangement can be a very good option in most cases but still it is not suitable for every individual. So the first step is to determine if IVA is appropriate debt management tool for you.
The best practice in this regard is to consult a professional but impartial advisor, normally an insolvency practitioner. All the relevant information related to your financial situation such as your income, expenditure, properties, liabilities, debts and future plans (job, future business plan etc.) must be shared with the advisor and asked to give an appropriate advice. He or She would analyze all the information and calculate the realistic amount of money you’d be able to pay every month under IVA contract. Moreover, your advisor would also analyze if the creditors would be willing to approve such an agreement or not. If the advisor agrees that IVA is the best possible option then you’d move forward to the next step.
At this point, it will be better to also ask your advisor for all the consequences of IVA and any other alternatives such as bankruptcy. Although the IVA looks far better option but in few cases bankruptcy might be a better option for the debtor. Be sure to choose impartial but professional advice at this point.
2) Statement of Affairs:
If IVA is the most appropriate method for you after all the discussion and careful examination then you must go for it. At this initial point, a draft called ‘Statement of Affairs’ is made. The statement of Affairs depicts your current financial position including your income, expenses and the state of assets and liabilities. This is actually the first formal step towards Individual Voluntary Arrangement. It is drafted by insolvency practitioner who acts as nominee. You must agree with the draft proposal and sign it; it is usually the best offer that could be made to the creditors.
You also have the option of applying for interim order at this stage. It is basically like a ‘stay order’ and if approved, the creditor can’t take any further legal action until the matter of IVA is not resolved.
3) Meeting of Creditors:
Once the IVA proposal is drafted and you (the debtor) are happy with it, it is then forwarded to the creditors and the county court. One of the important elements of this draft is the date of meeting. This is basically the date of meeting of creditors where this proposal is discussed and voted upon. It is usually after 14 days of initial draft.
The creditors can ask for any modifications in the original draft. The debtor also has the option to propose any alterations to the draft at this meeting. Creditors can also demand for more information and call another meeting at later dates if more time is required to consider the proposal.
4) Voting at the creditor’s meeting:
During the meeting, a final vote is made by the creditors to either accept or reject the proposed IVA arrangement. For the proposal to be accepted, at least 75% or more creditors must vote in the favor of your proposal. Also remember that this percentage is calculated on the basis of debt and not on the basis of number of individual creditors. The creditors can also appoint proxies to vote on their behalf at the meeting.
If the required percentage (i.e. 75 %) or more is achieved in the favor and the proposal is approved then all the unsecured creditors whether they voted in favor or against the proposal are legally bound to accept the terms of Individual Voluntary Arrangement.
5) Appointment of a Supervisor:
Once the proposal is accepted at the meeting, all the relevant stakeholders are informed through the formal means of communication. A supervisor is also appointed at this point to monitor the ongoing payment process during the whole period of IVA. This supervisor is usually the same insolvency practitioner who acted as Nominee in the initial stages. It is also the duty of supervisor to monitor if all the parties are acting according to the terms of IVA or not.
6) Final step- The duty of debtor:v
Once all these legal steps are performed and IVA is approved, it is the duty of debtor to continually pay the required monthly installments of money during the whole IVA period (normally 5 to 6 years).
The insolvency practitioner review your financial situation periodically (usually once in a year) and report is sent to debtor and creditors. Failing to abide by the terms and paying the money could lead to the ending of Individual Voluntary Arrangement and creditors may go for bankruptcy in the court. But if the conditions of IVA are met and all the payment being made during the IVA period, then the debtor will be discharged from all the legal liabilities at the end of 5 year period of IVA.
So by availing the IVA option and making all the monthly payments, one can become debt-free in few years without going for bankruptcy.
The detailed procedure of IVA was explained in the above six steps. Please remember that IVA is not for everyone and there are certain conditions which must be met in order to use Individual Voluntary Arrangement. It is also possible for some individuals to not get many benefits from IVA, while it could be a great arrangement for other individuals. So, you must seek professional advice from impartial professional before starting the formal process of IVA.