If you have debts, chances are you are now being chased by your creditors for payment. If you are considered insolvent and unable to pay your debts, it may well be worth considering an Individual Voluntary Arrangement (IVA). Of course, if you own any assets of significant value, you may be able to sell those assets in order to pay off your debts, even if you are already in an IVA.
What is an IVA?
An IVA is an agreement between you and your creditors to pay off your debts. If your creditors agree to an IVA (for an IVA to be agreed, your creditors that hold a minimum of 75% of your debts must be in agreement to the IVA), it must be set up by an insolvency practitioner (IP). They will assess how much you are able to pay per month, liaise with your creditors and come to an agreement with them on your behalf. You will make one monthly payment to your IP and they will distribute that amount between your creditors.
A major advantage of an IVA is that it will stop your creditors from taking further action to recover their debt. It will also be much easier for you to manage just one payment a month rather than multiple payments.
Most IVAs last for 5 years, although some will extend to 6 years. However, it’s important to note that it is unlikely you will be able to have your IVA removed from your credit score until a further year has passed after the IVA has been completed. In addition, it is important to ensure that you receive an IVA completion certificate from your IP to prove that it has finished.
Not all your debts can be included in an IVA, such as:
- Maintenance arrears ordered by a court.
- Child Support Agency or Child Maintenance Service arrears;
- Court fines;
- Mortgage, rent or secured loan (unless your landlord agrees);
- Student loans.
In some cases, creditors can add a clause that will stop you from selling your property whilst the IVA is still active. Another downside to an IVA is that you will find it very hard to secure any further credit, i.e. a loan, when you are in an IVA situation. You will be expected to consistently make your monthly payments on time and if you are running a business, you are allowed to continue. However, if you fail to keep up your monthly repayments, your IP can cancel the IVA and your creditors will be allowed to take further action.
Selling assets to pay off IVA debts
With regards to your assets, selling them off is a potential solution. Everyday possessions are not impacted by an IVA. But if you own any possessions of significant value, such as antiques or jewellery, you may be able to sell them to raise the money to pay off your debt, if not in its entirety, certainly a large sum towards it.
If your assets are worth in excess of the amount you owe, an IVA is not the best debt solution. If the value of your home, once your mortgage and secured loans have been deducted, is less than the amount you owe, i.e. your debts exceed the equity in your home, an IVA is a possible solution.
Your assets are items of significant value, such as your car, a property, land or even your home. These assets can be included in your IVA agreement and used to pay towards your debt. Indeed, most IPs will recommend including these assets but if you are a homeowner, there are specific rules regarding how your home is considered as part of an IVA. If you want to keep any of your assets, such as your car, that must be excluded from the IVA and you will need to address this matter with your IP.
One thing to note if you are insolvent and unable to pay your debts; when you’re in an IVA, if you receive a windfall, such as an inheritance, you will be expected by your IP to pay the entire amount to your creditors. This is known as a ‘windfall clause’ and includes any monies you receive because of an event that happened before you entered the IVA, even if the IVA has completed, such as a PPI refund. You must also declare any salary increases to your IP or it may be considered as breaking the law.
The IVA Protocol
The IVA protocol was established to provide IPs with guidelines on how to set up IVAs, making the process quicker and easier for all parties. The areas covered by the IVA protocol include:
- What the IP does to check your income and outgoings
- Creditors should accept your figures as long as they fall within set limits
- Details on how any equity in your home is handled
- Your IP must ensure you have received debt advice about the solutions available to you
- What should happen if you miss any monthly payments
- What should happen if your income and outgoings goes up or falls.
However, IVAs are very much tailored to the individual so not every IP uses the protocol because it can’t be easily followed, but you should also ask your IP whether they are using the protocol. If not, they should explain why. There is also new guidance from the Government in respect of IVAs and the coronavirus pandemic which, essentially, allow IVAs set up prior to 1st August 2021 to be flexible.
If your IP is following the IVA protocol and you are a homeowner, you will need to provide at least one, if not more, valuations against your home and these will be presented as part of the IVA proposal sent to your creditors. Your IP will agree with you on one of the valuations and your share of the equity is calculated, i.e. if the property is jointly owned, they can only consider your part of the equity, not the other co-owners’ share. The calculation will be based on 85% of the value of the property, minus any existing mortgages or secured loans. This will determine how your home’s equity is handled in the IVA agreement.
Once an IVA has completed, any remaining debt is written off, including any balances outstanding on the IVA’s debts, and a certificate of completion is issued. It is possible to settle an IVA early but your creditors will need to agree to a lump sum and that no further monthly repayments are required. Any early settlement must be handled through your IP who will recommend this option to your creditors if they feel your offer is reasonable. Again, 75% of your debts held by creditors must agree to your lump sum offer. In addition, the source of the monies to make an early settlement must be proved to be from a legitimate source, i.e. an inheritance, and are not part of the IVA.
Individual or company insolvency is not something that anyone wants to deal with; however, the sooner a financial problem is recognised, the sooner it can be dealt with and the more potential there is for the debt to be paid off. If you or your business is struggling with debt, contact Simple Liquidation for assistance. For more information on how our professional insolvency practitioners may be able to help you, contact us today.
