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IVAs Frequently Asked Questions
A. An IVA is an arrangement with an insolvency practitioner and your creditors that once entered into, is legally binding. The purpose of an IVA is to help the debtor reach an arrangement with their creditors and thereby avoid bankruptcy. It is usually the case that creditors can expect a larger portion of the debt to be repaid than if the person was to be declared bankrupt.
Repayments from the person’s income are made to the insolvency practitioner who then pays the creditors., Unlike other debt programs such as debt consolidation, an IVA is legally binding on both the debtor and the creditors, and prevents creditors from taking further action against the debtor through the courts, providing the debtor sticks to the agreement.
Q. Who benefits from an IVA?
A. An IVA is available to everyone and is often used by property owners to avoid losing their home which might happen if they were made bankrupt. IVAs may also be used by some businesses who wish to repay their debts but carry on trading, which might not be possible under a bankruptcy order. Again, this way of doing things means that the creditors can expect a greater portion of what they are owed than might be the case if the person was declared bankrupt.
A. The person would first find an insolvency practitioner who will act as their nominee, the person who negotiates with the creditors, and puts forward a proposal concerning the debts. The nominee will then pass this on to the creditors along with his or her own comments and a date when creditors can meet with the nominee to discuss the proposal. The nominee will also circulate a list of the person’s assets and liabilities along with a proposed repayment schedule that has to be approved by a majority vote. The nominee will also forward notice of his or her fees should the proposal be accepted, a list of all creditors and a form of proxy for the voting.
Once the documentation has been circulated creditors have 14 days to decide on the proposal. Seventy five percent of the vote is needed for the proposal to go through and whether they voted or not, all creditors will be bound by the agreement. It is up to the nominee to see that the proposal is carried out, providing the person sticks by the agreement then at the end of the five year period any remaining debt is discharged.
Q. What are the advantages to both parties?
A. Creditors receive a greater proportion of what is owed than if the person went bankrupt. Partners and sole traders can carry on with their business. The debtor does not suffer the same consequences as bankruptcy, e.g. no bank account and no listing as a company director.