How IVA's Are Different From Debt Management

An individual voluntary arrangement (IVA) can seem very much like a debt management plan when you look at it from the point of view of deferred payments. When you are in a situation where your level of debt is so high and the required monthly payments are much more than you can afford, you have to find some way to reduce your outgoings. The IVA and debt management are some of the tools you can use to accomplish that reduction in outgoings. There are differences, however.

In a debt management situation, you are in dire straits but still confident you can find a way out if your creditors give you time. A debt management service will help you sort out your finances, devise a repayment plan for your debt, and negotiate with your creditors to gain their acceptance. There may be a request that the creditors forego interest on your debt, or at least reduce the interest rate, and to waive fees. You commit yourself to continue paying your debt but at reduced amounts until your circumstances improve, and you still acknowledge your indebtedness for the whole amount of debt.

In an IVA situation, you are this wee bit away from bankruptcy and just want to try one more time to avoid the restrictions of bankruptcy. An IVA is provided for in law, and is your legal alternative to bankruptcy. Since the IVA is recognised in the eyes of the law, it can be proposed even after a bankruptcy order has been issued by the court. You submit a proposal to a court, wherein you essentially ask your creditors to accept payment of less than 100 percent on the amounts owed which, if accepted, becomes full and final settlement of the debts. The alternative is that they accept deferment on the payments.

A debt management plan is a private matter between you and your creditors with the participation of the debt manager. Once your proposal is accepted, you make your payments to the debt manager who takes care of distributing your payment pro rata amongst your various creditors. In all further dealings with your creditors, you will be represented by your debt manager. The agreements between you and your creditors will be, in effect, supervised by the debt manager.

An IVA is also a private matter between your and your creditors with the involvement of a nominee or supervisor, acting with the approval of the court. The nominee informs the creditors of your proposal and discusses the matter with creditors under guidelines established by the Insolvency Act 1986. There are at least three hearings in court where the nominee represents you: one, when an application for an interim order to stay any legal proceedings that may be pending against you is lodged; second, when the nominee submits a report on your proposal and statement of affairs, to determine if there is need to convene a meeting of your creditors; and third, when the nominee report to the court the results of the creditors meeting. If the creditors accept your IVA proposal, the IVA is now in place and given due notice by the court. But if they decline, you are on your own and the court will discharge its interim order, meaning that all pending legal proceedings that were stayed may now continue.

Then, you may have to turn to bankruptcy.