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Individual Voluntary Arrangements

In 1986 the government introduced into law the concept of an Individual Voluntary Arrangement (IVA).

IVA's were introduced so as to give individuals a better opportunity of reaching an agreement with creditors whereby those creditors received a percentage in the pound as full and final settlement .

There is no set percentage. Every IVA proposal is different. To show how different you may wish to read the three following case studies:

• An IVA offering "monthly payments" only
• An IVA offering only the equity in the matrimonial home
• An IVA offering a lump sum being a gift from a relative

These three case studies are not exhaustive . There are many different types of IVA.

If you are interested in an IVA you may wish to read:

• How an IVA is approved or rejected (the voting rules)
• The information that an IVA must contain
• An illustrative 'proposal' document.

In order for creditors to accept an IVA, the proposal would have to demonstrate to them that they would receive more benefit and a higher dividend than should bankruptcy occur.

Bankruptcies currently run for 3 years, so an IVA would usually run for between 4 and 6 years. However, the Government are reviewing the bankruptcy process and looking to alter the period of some bankruptcies to 1 year.

This would clearly have an effect on the way creditors would view an IVA proposal and also for some individuals, a bankruptcy may be a better option than an IVA.

From the 1st April 2004 a new type of voluntary arrangement becomes available to undischarged bankrupts. This type of IVA is called a "Fast-Track" IVA.

A fast-track IVA is one which is proposed by the individual, not through a private sector insolvency practitioner but instead, through the Official Receiver. (The proposal document may be prepared by a private sector practitioner but would then be passed to the Official Receiver for his consideration).

A fast-track IVA has the following advantages:

• creditors are not allowed to "modify" the proposal when the proposal is considered at a creditors meeting. In other words the creditors can vote either "yes" or "no". Creditors cannot seek to change the proposal in any way. Creditors cannot, therefore seek to:
  
  
  • increase the proposed term of the IVA or
  • increase the sums payable under the IVA

• the "requisite majority" to approve the proposal has a relaxed percentage requirement.

• If approved it will lead to the annulment of the bankruptcy.

The primary disadvantage of a fast-track IVA is that you already have to be subject to a bankruptcy order before you can propose such an arrangement. For this reason it is thought that not many "fast-track" IVA's will actually be proposed.