Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement (“IVA”) is a legally binding agreement between an individual and their creditors to repay proportion of their debts over a prescribed period. An IVA is essentially a contractual agreement which is governed and enforced under a statutory framework.

Under an IVA, the individual agrees to make payments to an Insolvency Practitioner (“IP”), who pays the individual’s creditors in accordance with the terms of the IVA.

An IP will initially provide the individual with advice in relation to the IVA, they will assess whether an IVA is suitable for the individual, what the individual can afford to pay and how long an IVA should last. A proposal is then prepared by the debtor, with the assistance of the IP as a “nominee”. A meeting of the individual’s creditors will take place (often virtually) and the creditors will be given the opportunity to vote on the IVA proposal. The IP will become the IVA “supervisor”. In their capacity as supervisor, the IP is responsible for ensuring that the terms and conditions of the IVA are adhered to, ultimately protecting the interests of the creditors.

If an individual fails to keep up with their payments under the IVA, the IP can end the IVA and take steps to make the individual bankrupt.

An IVA is a formal, legally binding agreement between an individual and their creditors to repay a portion of their debts over a fixed period. During this time, the individual makes affordable monthly payments, and any debt remaining at the end of the term is written off. The individual must adhere to the terms of the IVA, but generally these enable to individual to retain control of their assets.

Bankruptcy is a legal process in which an individual is declared bankrupt, which means that they are unable to repay their existing debts. It involves a trustee in bankruptcy taking control of an individual’s assets, which are then usually sold to repay their creditors. Whilst bankruptcy can provide a fresh start for individuals, it can also have long-term consequences including loss of assets.

An IVA relieves pressure on an individual and provides them with a method of structuring their debts and repayment obligations. Other benefits are that an IVA binds creditors into an agreement, such that they cannot chase payment for IVA debts during the term of the IVA.

Whilst an IVA is in place, the debtor will make regular payments to the supervisor who will then declare dividends to the IVA creditors. The terms of an IVA are often such that a debtor will end up paying less than their total outstanding debts because the creditors agree to accept a reduced sum.

An IVA is not necessarily right for everyone. Given the fees associated with entering into an IVA, it may only be a commercial option for debtors with larger debts. It is also worth noting that certain debts cannot be included within an IVA – for example, secured debts such as mortgages usually have to be repaid notwithstanding the existence of an IVA.

IVAs can last a long time, often up to five years, with further extensions after this date. If you are expecting to receive money in the near future, for example, an inheritance or pension withdrawal, you will need to consider whether those payments are caught by the terms of the IVA and are required to be paid into the IVA.

IVAs are publicly recorded on the Individual Insolvency Register, like bankruptcies. This option may not therefore be right for a debtor who wishes to pay their debts privately.

A debtor must fulfil specific criteria to enter into an IVA. For example, they need excess monthly income to be able to make the IVA payments. If a debtor cannot make meaningful payments, their creditors are unlikely to agree to an IVA.

IVAs can cover a wide range of debts, including loans, credit cards, overdrafts and outstanding bills.

Secured debts such as mortgage or rent arrears may be included in an IVA if a creditor agrees, however, usually, creditors will not agree to give up the benefit of their security.

The following debts will not be included in an IVA:

• Child maintenance or court-ordered maintenance arrears
• Student loans
• Magistrates’ Court fines
• Social Fund loans
• TV licence arrears.

We suggest that a debtor takes independent professional advice to determine whether or not an IVA is appropriate for them.

Initially, an IP will be a nominee for the debtor’s IVA proposal. Once the IVA has been approved by the debtor’s creditors, the IP will become the supervisor of the IVA and, in doing so, will be required to supervise the debtor’s implementation and compliance with the terms of their IVA.

An IVA is approved by creditors holding 75% or more of the debt by value, provided less than half of the total value of creditors who are not associates of the debtor vote against it (rule 15.34(6), IR 2016).

The vote must be taken using a creditors’ decision procedure set out in the Insolvency Act 1986. If the IVA is approved, it:

• Takes effect as if made by the debtor at the time the creditors decided to approve the proposal.
• Binds every person who, in accordance with the IR 2016, was entitled to vote in the creditors’ decision procedure approving the proposal (or would have been so entitled if they had received notice of the decision procedure).

A creditor can challenge an IVA if they feel that their interests have been unfairly prejudiced or if there were material irregularities relating to the creditors’ decision procedure. If a challenge is successful, then a court can revoke or suspend an IVA.

An IVA will impact the debtor’s credit rating, which means that they may find it hard to get credit while the agreement is in place.

Creditors can check whether you have an IVA by searching the Individual Insolvency Register. Your IVA will usually stay on the Register until three months after it has ended.

If you want to apply for more than £500 of credit, you also need written permission from the supervisor unless the credit is for utility bills.

Each IVA will set out the terms upon which it will be completed or terminated. An IVA usually lasts between three and six years and can come to an end if there has been a breach of the terms, if it has come to a premature end or it has been satisfactorily completed in line with its terms.