What is an IVA

If you are like many consumers in the UK, who are faced with unsecured debt so overwhelming that your resources simply cannot pay off all your debt, you have two choices: go into bankruptcy or execute an Individual Voluntary Arrangement (IVA). To avoid the automatic restrictions of bankruptcy, you may opt to set up an IVA instead.

In an IVA, you enter into a formal arrangement with your creditors, whereby your creditors agree to one of two options:

• That they accept a payment in value of less than 100 pence for every pound of debt, and consider that as full and final settlement on your debt with each one;
• That they agree to some deferment of the time for payment of the debts.

The IVA is essentially a private matter between you and your creditors, although a nominee/supervisor is involved in the discussions leading to the agreement and acts like a trustee in bankruptcy. The terms are flexible and are determined by your current circumstances, such as your existing capital, your current income level, possible payments assistance from third parties, or a blend of these sources of repayment.

Generally, it is more advantageous to draw up an IVA before you are declared bankrupt; however, it is acceptable to propose one after bankruptcy.

IVA before Bankruptcy

Only an individual debtor can make an IVA proposal. Joint debtors, such as partners, cannot propose IVAs jointly though they can do so individually. The Insolvency Act 1986 sets out the details you need to put in your proposal, including an explanation of why you think an IVA is preferable and why creditors may be expected to agree, details of your assets and liabilities, and an estimated cost of the IVA. Creditors will be called to a meeting, presided by the nominee, to vote on the proposal; voting is based on credit exposure. To be approved, at least 75 percent 'yea' votes is needed when connected parties take part, and of the 'yea' votes, at least 50 percent should be unconnected.

Whilst the IVA proposals are under consideration, you must apply to the court for an interim order to stay all actions against you. Note that you must do this, whether or not you need this protection. If and when you do want the protection, you will again ask the court to issue the order which, if the court approves, will last for 14 days with provisions for extension. Only the nominee may ask for extensions. If the creditors disapprove your IVA proposal, the court will discharge its interim order and leave you to the mercy of your creditors. If the creditors' meetings approve the IVA, no further order will be issued by the court but the IVA will now be in place.

IVA after Bankruptcy

The 2002 Enterprise Act provides for a fast-track regime for post-bankruptcy IVAs, where the official receiver becomes the nominee. Under this regime, your IVA proposal will be agreed with the official receiver and filed with the court. Creditors are no longer called to a meeting, and you cannot modify the proposal. The receiver sends out the proposal to the creditors on a 'take it or leave it' basis; creditors will signify their agreement or disagreement in writing. If the creditors approve the IVA, the receiver becomes supervisor of the IVA and will notify the court, which then annuls the bankruptcy order. Most people do not like the fast-track approach because the arrangements offered are considered too restricted.