An individual voluntary arrangement is often considered a flexible solution to help you manage outstanding debt issues.
An IVA is a legally binding arrangement/agreement between creditors and debtors.
As a professional business debt collection agency with years of experience behind us, we would always recommend gathering as much information as possible on all debt solutions.
There are several pros and cons to entering into an individual voluntary arrangement, which we explore in more detail throughout this post.
Individual voluntary arrangement meaning
In essence, an IVA is a way for debtors to enter into an agreement where they pay what they can afford for a fixed amount of time.
At the end of this set time period and upon the successful completion of the IVA, any debt that the debtor has not repaid will be written off.
However, and this is an important point to note, all parties must agree to the new terms laid out in the individual voluntary arrangement in order for it to be granted.
When we examine individual voluntary arrangement (IVA) definitions more closely, we find that an IVA freezes your debts and allows you to repay them over a set period. Any money still outstanding at the end of the IVA agreement is then written off.
IVAs will typically last between five and six years. Debtors will make set payments every month, and they can change or pause payments as required.
Debtors can also opt to settle their debts early if they so wish, and they can also use assets to repay what is owed.
Once all payments have been made, the debtor will then be debt-free.
All about individual voluntary arrangements
Debt charities are best advised to help those struggling with debts to enter into and obtain an IVA on the debtors’ behalf.
An IVA is granted if the debtor can afford to pay something, but not the full amount.
Helping to keep debtors on track with repayments, insolvency practitioners will also liaise with creditors directly.
The insolvency practitioner will look into how much, as the debtor, you can realistically afford to pay monthly and still live comfortably.
Once a debtor enters into an IVA, no further interest or collection charges from the creditor can be added, and all debt collection activity will cease.
Often, the repayments will include and cover the fees and costs associated with IVAs.
Note: Individual voluntary arrangements are not available in Scotland.
Business debt recovery
You can enter into an IVA for:
- Overdraft debts
- Personal loans
- Hire purchase debts
- Council tax arrears
- Mortgage shortfalls
- Credit card debt and more.
You cannot enter into an IVA for:
- Student loans
- Court fines
- Certain types of car finance
- Social fund loans
- TV licence arrears
Benefits of entering into an IVA
- The debtor pays a single monthly amount, helping to give them time to get their finances back on track, rebuild their credit, and improve their financial situation.
- Any remaining debts are written off after the last payment.
- Interest, charges, and debt collection stop when the IVA begins.
- The insolvency practitioner will deal with creditors on the debtor’s behalf.
- A debtor’s home is protected during an IVA agreement.
Risks of opting for an IVA
- If you don’t successfully complete the IVA, no debts will be excused and, as such, will not be written off; you will have to repay all debts. Creditors will contact you, and any missed interest can be added.
- An IVA can impact your credit rating, which needs to be managed carefully. Specifically, an IVA will be recorded on your credit file for six years.
- There are fees to be paid to the insolvency practitioner, as well as setup fees.
- The insolvency practitioner can cancel an IVA and apply to make the debtor bankrupt if the rules of the IVA are not adhered to.
- At least 75% of the debts must be included in the agreement for it to be accepted.
- IVAs are formally recorded and held on the individual insolvency register, which is accessible online by anyone.
- Any additional income must go to repay debts.
- Borrowing will be limited during your IVA, as you will be considered a high-risk customer. Alternatively, if borrowing is granted, it may be at a higher interest rate.
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Corporate debt recovery
At Direct Route, we aim to support businesses in the recovery of outstanding payments before they pose a bigger financial risk, affecting cash flow and everyday operations.
Working with business debt recovery solicitors or a professional debt recovery agency, such as ourselves, can help you keep your finances on track by focusing on prompt payment and implementing credit control processes that limit late invoice payments.
To find out more and to see how we could help you, call a member of our team today on +44 7860 197 476.
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