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What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a legally-binding agreement between you and your creditors which promises to pay back as much as you can afford over a fixed period, which is typically only a percentage of your total debt. Your remaining debt is written off once your IVA has been completed. During your IVA, you are protected from legal action by your creditors. Your IVA is supervised by a licensed Insolvency Practitioner.

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Am I eligible for an IVA?

Insolvency Practitioners tend to look at all cases on an individual basis, so sometimes it is hard to give definitive advice as to what fits the correct solution, but in principle we would not want to consider a case unless it meets the following criteria:-

• Disposable income of at least £75
• At least two creditors,
• Minimum debts of £7,500
• Employed – or with a regular form of income from business profits, pensions or consistent benefit income
• You can also propose an IVA if you have a lump sum available to make a “one-off” full and final settlement

What are the advantages of an IVA over other debt solutions?

• Creditors cannot charge interest and charges once they have accepted the IVA
• Creditors cannot take any form of legal action once they have accepted the IVA
• Payments are made for a set time period – usually five years, at which time the balance of any outstanding debt is usually written off
• Debtor’s property is generally protected – subject to the need to explore an equity release during the final year or extend for a 6th year if equity release is not possible and there is over £5,000 worth of equity.

What are the disadvantages of an IVA compared to other debt solutions?

• More stringent industry allowances for expenditure which are based on the Step Change Debt Charity guidelines
• Potential requirement to raise equity during the final year – subject to certain criteria or possibly extend for a further year.
• Name will appear on the Electronic Individual Insolvency Register, although generally people do not look at this and doesn’t really affect people.

How long does it take for the IVA proposal to be prepared?

We expect to have a proposal prepared and returned to you within a week of our initial instructions. Delays can occur if the information requested is not forwarded to us, or is not complete. Your creditors meeting can then take place within three weeks of the return of your documents. In the meantime your chosen insolvency practitioner will be dealing with creditor queries on your behalf, and will write to the creditors to inform them that you are in the process of proposing an IVA.

Can creditors still take legal action against me and charge interest?

Once the IVA has been accepted by creditors, they can no longer pursue any form of legal action against you (without the permission of the Court) or charge interest.

Will the Individual Voluntary Arrangement be advertised?

No. Although a bankruptcy order is still sometimes advertised in your local paper, this is not required in an IVA. You should, however, be aware that your details will require to be registered on the Insolvency Register which is available for search and can be found on the internet if anyone was looking but they would have to put specific details in relating to you. This is only generally used by industry professionals and prospective lenders.

Can I enter an IVA if I am a student

There are no formal rules in place that stipulate that a student cannot apply for and have an IVA accepted. The formal requirement of an IVA (Individual Voluntary Arrangement) is that you can make regular repayments to the creditors, and continue to repay the amount over the IVA term. If you do not earn very much income due to partaking in a full time course, the option of an IVA may be inappropriate as a solution.

An alternative to a standard form of an IVA could be a full and final IVA. This is where you pay one lump sum that pays off all the creditors and then leaves you with the rest of the debts written off. This may be easier to sustain as a student, as this is a one-time payment rather than an ongoing plan.

If you are already in an IVA, but you now want to start studying you need to assess the implications that this will have upon your IVA. If you cannot afford to continue to repay the normal IVA repayment amounts, you must notify your Insolvency Practitioner (IP) and inform them of your change of circumstances. The Insolvency Practitioner will inform your creditors of the change of circumstances, and may be able to renegotiate the terms of the IVA, and reduce the monthly repayment amount. In order to go into full time education, your Insolvency Practitioner may need evidence as to why you need to go into full time education right at this moment in time, rather than waiting until the end of the IVA term.

There is an option, under these circumstances to make yourself bankrupt. If you are already in an IVA it is possible to stop paying the IVA which would eventually cause the IVA to fail, at this point you could declare yourself bankrupt.

If you are seriously considering taking out an IVA or if you already have an IVA but are looking at reducing your income or changing your circumstances by becoming a full time student, it may be advisable to speak to your IVA administrator. An Insolvency Practitioner can offer helpful advice on which avenues are available to you in your circumstances. Please note that student loans cannot be included in your IVA.

Will I lose my home?

No. The protocol is suitable for both home owners and non-home owners. There should be no circumstances where the individual would be forced to sell their property instead of releasing equity. If you take out an IVA (Individual Voluntary Arrangement), you need to consider what will happen if you are a homeowner. The IVA Protocol has produced a set of criteria that should help safeguard your property. If however you are currently renting your home then your property will not be affected or considered in any way if you do choose to take out an IVA (Individual Voluntary Arrangement).

An IVA will legally protect your home from action from your creditors because once your IVA has been accepted, the creditors cannot use a charging order to secure debts against your house. The IVA solution also means that the creditors cannot generally apply for your bankruptcy which could mean that you would be forced to sell your property.

The only exceptions would be where this was proactively proposed by the individual.
The conditions to re-mortgage are: –

• There should be a 54 month valuation and if there is less than £5,000 of equity based on this valuation, no realisation in lieu of equity is necessary and the term shall not be extended
• Re-mortgage would be a maximum of 85% Loan To Value (LTV), of the debtor’s interest in the property.
• The incremental cost of the remortgage, including the cost of any new repayment vehicle, will not exceed 50% of the monthly contribution at the review date.
• The net worth released will not exceed 100p in the £ excluding statutory interest.
• The remortgage term does not extend beyond the later of the debtor’s State retirement age or the existing mortgage term.
• The increased amount that you would have to pay because of the re-mortgage will be deducted from the remaining monthly contributions in the arrangement.
• If the increased amount that you have to pay at any time following the re-mortgage means that the required contribution to the arrangement falls below £50 per month, monthly contributions are stopped, and the IVA is concluded.

Generally the creditors will want you to release as much equity as possible from your property, the amount that you raise will be dependent upon the re-mortgage deal that you will be eligible for. On average most people will not be eligible to release more than 75-80% of the equity within your property on a re-mortgage.

On most occasions, people within an IVA are not able to re-mortgage due to their credit history and their current financial situation. This can often be the case due to the current economic climate, and the banks being incredibly resistant to lending money. When this situation occurs, there is a clause in the IVA that states that you will increase the payment term by 12 months in order to compensate for the fact that you cannot release equity from your home.

If your circumstances change whilst you are in the IVA, and it becomes possible to release equity by re-mortgaging the property, you may be eligible to settle your IVA earlier than originally planned.

An IVA can be deemed as a very sensible option for a homeowner, as the risks are very different to a person that takes out a debt management plan or filing for bankruptcy. When a person files for bankruptcy, the bankrupt can be forced to sell their property in order to pay off the creditors. When a person enters into a DMP (Debt Management Plan) there is no legal protection on the property, and creditors are still able to issue charging orders against the property.

If you are having problems with debts and are considering an IVA, you can get more information on IVAs and debt advice from Shawcross Williams.

If I have a joint debt in an Individual Voluntary Arrangement are creditors allowed to chase the other person for the debt?

If the other person is also in an IVA then the creditors cannot chase them. However if your partner, spouse or friend is not subject to an IVA then they will be liable for the full outstanding balance of that debt (less any payments made during your IVA). There are ways of dealing with this but you will need to speak to your Insolvency Practitioner to ensure that this is dealt with properly in your proposal.

If someone has signed as a guarantor for one of my debts, are they liable for the debt?

Yes. Once they have paid the full outstanding balance of that debt to the creditor, they will then replace that creditor and make a claim in your IVA.

Will my IVA payments change?

Only if stated in the proposal (or any modifications stated in your Chairman’s Report), or if your income or expenditure significantly changes. For example, if child benefits stop, or if a hire-purchase agreement finishes, or if your income increases.

Please make sure that you understand your payment schedule before signing and returning your proposal, and read the Chairman’s Report carefully.

What will happen to my pension in an IVA?

It depends on the type of pension that you have. Usually where you are an employee contributing to your employer’s pension scheme, the creditors will allow you to continue to make contributions to the scheme. If you have a personal pension, then the creditors may insist that all further contributions are frozen for the duration of the Voluntary Arrangement. In either instance you may be asked to reduce the payments to the minimum allowed under the terms of the scheme. If you become entitled to receive a lump sum from your pension during the IVA, this could be deemed as a windfall and may need to be paid over, however the value of your pension scheme is generally exempt from both bankruptcy and IVAs.

What will happen to my bank account?

If you currently bank with a bank to whom you owe money or a bank within the same banking group, you should make immediate arrangements to open a new account with another bank. We have great links with a number of banks who will accept insolvent parties as new customers, so discuss this with your debt advisor.

Will I lose my car?

No. As long as the car is essential for work and domestic purposes, and is not of excessive value, there is no reason why creditors would want you to sell your car – as you will need a reliable vehicle to last for the duration of the IVA.

I have a car on finance, what will happen? Will the finance company re-possess it?

Providing the finance is secured on the vehicle, in most cases, your creditors will allow you to keep a car where it is essential, for example, to get you to and from your place of work. We will include in the proposal a provision that you will continue to pay the finance company their normal monthly instalments. In most cases the finance company will not re-possess the car and will continue to collect the outstanding monthly payments. You will however, be expected to increase payments by the same amount once the finance has finished. If the car finance is not secured on the vehicle it will simply fall into the IVA as an unsecured creditor.

Will creditors be allowed to offset children’s savings against debts incurred by me with the same creditor?

No, monies held in the name of your children will not be affected.

Will my employer be informed of the IVA?

No. The Supervisors of your Voluntary Arrangement will not contact your employer unless your employer is a creditor. You should, however, check the terms of your contract of employment to see whether entering into an IVA will affect your employment, or give rise to you being obliged to notify your employer of any insolvency.

I would rather certain creditors were not informed of the Proposal and kept out of the Individual Voluntary Arrangement

The Insolvency Practitioner must send a copy of the Proposal to all known creditors. You cannot pick and choose who you pay, unless there are exceptional circumstances, such as a debt to your employer which might cause you to lose your job. If a creditor is to be excluded details must be given in the IVA proposal, and the other creditors must agree to this exclusion.

How often will my creditors get paid?

Generally distributions are made on a quarterly basis, and will be reported to you at each anniversary as part of the Insolvency Practitioner’s annual report.

Where will the Voluntary Arrangement creditors meeting take place?

This is held at a place convenient for the creditors, which is usually at the insolvency practitioner’s own offices. We have found that over the last few years it is extremely rare for any creditors to attend these meetings, and you will therefore not need to attend but you must be available for a call on the day of the meeting to discuss the outcome and any potential modifications.

Will creditors allow pet insurance/vet bills as part of my regular monthly expenditure?

Yes. Creditors generally accept these items as part of your normal household expenditure, as they appreciate that furry and feathered friends are an important part of your family.

How are the Insolvency Practitioner’s fees paid?

The Insolvency Practitioner’s fees are paid out of the contributions you make into the Individual Voluntary Arrangement, or from assets you choose to realise. Your first payment into the IVA will be payable prior to your creditor meeting to show your commitment and that you are able to afford this contribution.

What happens if my monthly bills increase, or there is a change in my financial circumstances?

Your Insolvency Practitioner will monitor the level of your income and expenditure throughout the duration of the Voluntary Arrangement. Such reviews are usually made every six or twelve months. The Insolvency Practitioner will have discretion to reduce your payments by up to 15% over the term of the arrangement, but if you need a higher reduction this can only be agreed by creditors at a newly convened creditors meeting.

What happens if I get a pay rise?

You will need to inform your Insolvency Practitioner and this may give rise to an increase in your monthly payments. This is generally covered as part of the annual review, and unless the rise is substantial this generally is absorbed by increased expenditure.

What happens if I receive a bonus, commission or overtime?

You are allowed to earn up to 10% of your basic salary each month before you have to share any additional monies with creditors on a 50/50 basis. If you do exceed the 10% limit, it will be your responsibility to account to your Insolvency Practitioner for the additional monies on a monthly basis, and this will be checked as part of the annual review process.

What happens if I receive redundancy money, a lottery win or an inheritance?

Any unforeseen “windfalls” must be declared immediately to your supervisor. Theoretically these should be paid in full into your IVA for the benefit of your creditors, subject to an upper limit of you paying your debts in full together with the Insolvency Practitioner’s fees and expenses incurred to date. Realistically, if you know the funds are going to be available you should contact your IP to discuss a potential ‘offer’ to your creditors.

In the case where you can pay off your debts and IVA fees in full plus statutory interest, then you may no longer be required to make payments and your IVA will complete early.

What if I lose my job or there is a dramatic change in my circumstances?

There is a provision in the Individual Voluntary Arrangement (IVA) for a ‘payment holiday’ to call a further meeting of creditors if necessary. In previous cases, where somebody has been made redundant or has become seriously ill, we have managed to persuade creditors to either extend the period of the IVA or, in exceptional circumstances, consider the IVA complete. The important thing is that you tell us as soon as possible when there is a change of circumstances in order that we can do something about it quickly.

Will I be allowed to keep subscribing to Sky TV?

Yes. Creditors generally accept this as part of your normal expenditure, but limit the amount you can spend to a basic package of £27 per month. If you wish to have a more expensive package, this will have to be covered from your housekeeping allowances or similar.

Can I settle the IVA at an earlier stage?

Yes, providing the money you are going to use comes either from an asset which was specifically excluded from the IVA or a third party contribution of funds, perhaps from a friend or family member. Revised proposals will need to be placed in front of creditors at a newly convened variation meeting, but these generally have an excellent rate of acceptance.

Can creditors pursue me for the balance of debts after the IVA has finished?

No. Once the IVA is approved all known creditors are bound by the arrangement and they cannot change their mind at a later date or pursue you after the IVA is successfully concluded.

Will my credit rating be affected?

Yes. All of the major credit agencies receive an update of all IVA’s. The IVA will remain on your credit record for six years from the date of your original creditors’ meeting.

I have been made bankrupt already. Can I still propose an IVA to my creditors?

Yes, providing it would return the same amount / more money to creditors than they would get under the bankruptcy proceedings. The costs associated with bankruptcy are generally much higher than would be charged in an IVA so this can usually be a better option if assets or disposable income are freely available.

What happens if my Individual Voluntary Arrangement fails?

We appreciate that many things can happen over a five year period to disrupt your ability to continue making payments at the agreed level. We will work with you to understand why your IVA is failing and try to come to some arrangement with creditors for them to accept lower payments or the sums they have received to date as full and final settlement. If this cannot be done successfully and you are unable to agree an alternative offer with your creditors, then your Supervisor may be required to fail your IVA. In this instance the money you have already paid will be distributed to your creditors (minus the fees of the Arrangement) and your creditors will be able to pursue you for any outstanding balance on the debts remaining.

Will creditors ever extend my arrangement?

Creditors cannot change the terms of an IVA after that IVA has been accepted. However, if you are ever in breach of the terms of your IVA and it could fail, then creditors may allow you to continue with the compromise that you extend the Arrangement to makeup the additional payments.

If this happens it will be discussed with you fully, and you will have the opportunity to negotiate or refuse their offer.

When will my IVA finish?

Your IVA will finish when your Supervisor has issued a final report, and you are bound by the terms until this point. Typically an IVA will last 5 years from the date at which it is first accepted, assuming there are no outstanding matters

Not all of my creditors are listed on my chairman’s report. Are they all included?

All of your unsecured creditors listed in your proposal are included in your IVA and once accepted, are legally bound by its terms but only the creditors that have voted at your creditors’ meeting appear on the Chairman’s report. It is therefore important to disclose all of your debts to us prior to proceeding with an IVA.

Is there any way of making a formal complaint against creditors who keep on contacting me?

The first action you should take after being contacted by a creditor is to inform your Customer Services Administrator at Shawcross Williams. Shawcross Williams will ensure that your creditor is made aware of the situation, and if they fail to recognise the IVA or refuse to stop contacting you then we will take steps to ensure that you are adequately protected.

How do I rebuild my credit rating?

If you prove to the creditors that you can use credit and stay within the terms, then your credit rating will steadily improve. Defaulting on your agreed payments will always damage your credit rating, and these missed payments are often recorded for up to six years.

Can I miss a payment during the IVA?

Missing payments is discouraged in all but the most serious situations, as it could sometimes result in the failure of your IVA. However, there are some circumstances in which this is unavoidable. If you are ever unable to pay your IVA contribution then you must contact your Supervisor as soon as possible and make arrangements with them directly.

Why do I need to fill in an RX1 form?

If you own a share in any property your creditors will want a valuation of your property to be performed before the end of the arrangement. If you have any available equity this will need to be paid into the IVA in addition to your contributions. The RX1 form is a way of legally restricting your property from being sold without their knowledge.

Can my name be taken off the Insolvency Register?

In most cases the answer is no. The Insolvency Register exists for creditors to help them prove that you are in an IVA, and find the business address of your Supervisor. If you have a genuine and serious concern about this information being on the Insolvency register the Insolvency Service may consider its removal on an individual basis depending on your circumstances.

How to settle an IVA

Many people in debt take out an IVA or Individual Voluntary Arrangement in order to ease their financial situation by reducing their overall monthly repayments.

In some circumstances it may be possible to settle an IVA early. If you come into money or have excess cash flow that you previously didn’t have when you initially took out the IVA, it is important that you inform your IVA Supervisor. The IVA Supervisor will analyse the situation and inform the creditors as they will need to know where the money originates from and that there is evidence that it is available to settle the IVA.

The process surrounding this settlement is called a variation meeting in which the IVA Supervisor will call a meeting with the creditors to put forward a new proposal which encompasses the new sum of money acquired for debt repayment. If the creditors accept the new proposal, there is a time limit by which the money needs to be paid, usually around 3 months. Once the creditors have received the funds, the IVA will then be completed.

If I have extra money each month, if I pay it into the IVA – will my IVA finish sooner?

This depends on the exact nature of your proposal, and if you can afford to pay more than your monthly contribution then it is recommended that you discuss this with your Supervisor on an individual basis.

Why do I have to sign and send back my Chairman’s Report?

Your Chairman’s Report contains modifications to the original proposal that were made by creditors when they agreed to your IVA. You must sign and return your Chairman’s Report to indicate that you have read and agree to these modifications.

If I split up with my partner/spouse, can I split my IVA?

If your IVA is accepted on the basis that your partner or spouse is also in an IVA and making joint payments, then it is difficult but not impossible to split the two and make individual monthly payments. In this instance your Supervisor will need to write to your creditors and propose new terms to your IVAs.

Are creditors entitled to send bailiffs to my home once my IVA has been accepted?

No. Once you are in an IVA your included creditors must communicate with your Supervisor only, and must accept the dividend he pays them as full settlement of your debts (provided that the IVA completes successfully). If you have taken additional credit since approval of the IVA, those additional creditors are not bound by the IVA.

Why are my creditors still contacting me after my IVA has been accepted?

When your IVA is accepted, a copy of the Chairman’s Report is sent to all creditors. However, large companies such as banks and credit card companies often take time to process this and pass the information to their debt collection agencies. If you continue to get contacted, then you should advise the debt collectors that you are in an IVA and that all correspondence should be forwarded to your Supervisor.

If you have taken the above action and are still being contacted by your creditors, please inform your Supervisor as soon as possible, and he will contact the companies in question to explain.

After my IVA was accepted I received a call from a Bankruptcy company. Why?

When you enter into an IVA, your name is entered onto the Insolvency Register and is publically accessible online for the duration of your IVA. There are some companies who call individuals on this register with no other information and attempt to convince them that a different solution would be better for them.

If you receive a phone call or letter from these companies, please inform your Supervisor.

Why do you ask me to prove my income/expenditure during the IVA?

The Supervisor is required to collect evidence of your income and expenditure on an annual basis to ensure that you are paying the correct amount into the IVA. Payslips and proof of key expenditure such as utility bills and mortgage repayments are essential in order to prove that your monthly payments continue to be affordable and the maximum that you can reasonably afford. If this evidence is requested, then failure to provide it may result in the failure of your IVA.

If my income or expenditure change will my payments also change?

Often yes. The idea of an IVA is that you pay as much as you can reasonably afford. Your proposal (and any modifications by creditors listed in the chairman’s report) will clearly state how much you are expected to pay if your income increases, and any flexibility you may have with your monthly payments in case of emergencies. If you are in any doubt over how much you are required to pay, then you should immediately contact your Supervisor.

If your circumstances drastically change in a way that makes it impossible to continue under the agreed terms of the IVA, then your Supervisor may write to your creditors and request that they consider new affordable payments.

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