What is an IVA? Today, we will explain what an Individual Voluntary Arrangement is, and how it works. We will go in details explaining why you need and how it can help you. We will also give you a detailed tutorial on how to draft your proposal and present it to the court.
Voluntary Arrangement for Individual is a process in which an arrangement is presented to the creditor for delayed or no payment of debt. This scheme needs approval from the court and remains under the control of a supervisor. It is very common in England and Wale. However, countries like Scotland and Northern Ireland are also adopting this.
Before the introduction of these agreements in 1986, a person who failed to pay his creditor would ignore the consequences and hope the creditor didn’t raise a petition for his bankruptcy. There were only two options for the debtor, either file for bankruptcy or Deeds of Arrangement Act 1914.
This act allowed the debtor to come to an arrangement with the creditor on the ground of reduced or delayed repayments, but it didn’t keep dissenting creditor petitioning for debtor bankruptcy. The result was these arrangements weren’t very popular. The provision related to a more effective or legally binding solution of voluntary arrangements which were introduced with the Insolvency Act 1986.
How to Set up an Individual Voluntary Arrangement?
Following, we will explain how to set up an Individual Voluntary Arrangement. The IVA is a formal and legally binding agreement between a debtor and creditor to pay back the money over a specified period.
- Before Setting Up
The insolvency practitioner should explain every available option to the client before singing the IVA. It’s their job to assure you read and understand the terms. It helps you to devise ether the arrangement is right for you or not.
Once done, follow these steps:
Apply to Court for Interim Order
The Insolvency Practitioner (IP0 applies to the court for the interim order. It stops the creditor from taking any action against you while the IVA is set up. For instance, the creditor can obtain a court order against you or make you go bankrupt. These orders are unique, and your IP can help get any court action adjourned.
Discuss Finance and Repayment
The IP will now look at your finance. It will include everything like your monthly income, additional income, savings, assets, etc. Assets like real estate or cad will be included in IVA to raise more money and repay your creditors.
IVA has a clause about how you are treated. The IP will inform you about the assets you can include like something you need for daily life or run your business. Work out a repayment plan with your IP to pay back the creditor quickly. You need to offer as much as you can, or the creditors will step back.
Come up with a Proposal
The IP will draft a proposal for the creditor and court. In this proposal, you agree on repaying the creditor partially or full over a period (for, i.e., 1-5 years). The IP will also draw a report for the court; it will include their opinion as well whether the proposal is good enough or not. The report will include the following details:
- Full financial statement of your income, asset, property, and debt
- Proposal for setting out the terms of proposed IVA including arrangement length and how much money you will pay back
- Valid reasons why the creditor should agree to Iva, and they will benefit more if they accept the IVA instead of you going bankrupt
The IP helps to deice the right proposal depend on your conditions and whether the creditor accepts it or not. Insolvency Practitioner has to consider the right of the creditor to be paid back along with your conditions. If you insist on tweaking the proposal against your IP, the IP can ask the court to reject your IVA.
Creditor Review Your Proposal
The IP will call a creditor meeting at which the creditors vote on whether to accept or reject your proposal. This meeting is held at the IP’s office. You don’t have to attend this meeting in person (a telephone or video chat will also do) but you better to voice your concerns better.
If enough creditors for proposal, then the proposal is accepted and reported in court.