Hello and welcome back to Purnells' weekly blog. This week we shall be looking at Individual Voluntary Arrangements (IVA) in depth and seeing how they are used in practice.
What is an IVA?
I suppose this is the most basic question that could be asked and therefore a good place to start.
An IVA is a formal deal with your creditors, a contract, which will allow you to deal with debt in full and final settlement, even if all the debts cannot be repaid in full.
As it is a contract between you and your creditors, the terms of that contract are binding on all parties involved.
Types of IVA
There are three types of IVA and these are as follows:
1. Monthly Payment IVA
This is where a set monthly sum is paid into the IVA for a period of three to five years, out of surplus monthly income, to offer a dividend to the creditors.
2. A Lump Sum IVA
This is where a lump sum is offered to the creditors in full and final settlement. This can be from the sale or remortgage of a property owned by the individual or a gift from a third party if the individual has no lump sums to offer.
A lump sum IVA is often used as part of safeguarding the matrimonial home. In one of our previous blogs we discussed how sometimes it is possible to safeguard the matrimonial home by your spouse or family buying out your share.
The monies raised from that buy out can be used to put forward a lump sum IVA to your creditors.
Therefore, not only is the house safeguarded but all the creditors will be dealt with therefore giving you a fresh start.
3. Hybrid IVA
This is a combination of 1 and 2 offering a lump sum together with monthly payments.
How much should I offer?
A common question we are asked here at Purnells is, "how much should I offer to my creditors in order to get an IVA approved?" The answer to this is that, if you are truly considering an IVA then you need to put forward your best offer to creditors in order that they are repaid as much of the debt they are owed as possible.
That being said, and to further muddy the waters, we have seen proposals offering 100pence in the pound to creditors rejected and proposals offering less than 1pence in the pound approved!
The reason for this is that there are other considerations that need to be made, for example the Revenue will always review past compliance. If past compliance is particularly poor they will be reluctant to approve any IVA even if it offers 100 pence in the pound. However, that being said, there are still safeguards that Purnells will often put into an IVA proposal to satisfy HMRC.
We will review HMRC's published guidelines and how to deal with their criteria if you do not meet them, in a future blog.
What is the Insolvency Practitioner's ("IP") role ?
The IP effectively has two roles in relation to an IVA.
Whilst an IVA is not approved, the IP is known as the Nominee. In this role the IP must liaise with creditors on the Individual's behalf in an attempt to get the IVA approved.
If and once an IVA is approved, the IP's title changes to Supervisor and assumes the role of supervising the IVA to ensure that all terms are adhered to. In this role the IP is much more independent from the individual and creditors whereas, as Nominee, the IP is seen to be working on behalf of the individual in order to get the proposal approved.
Do all my creditors have to agree?
In order for an IVA to be approved, 75% of the creditors voting at the meeting must approve the proposal. This is not 75% of your total creditors (unless all your creditors vote at the meeting of creditors).
If creditors decide to vote or not, if the proposal is approved then all of your creditors are bound by the terms of the proposal. Creditors are all given the opportunity to vote and therefore bound no matter if they decide to vote or not.
Should you wish to discuss IVAs in more detail, please do not hesitate to get in contact. Telephone: 01326 340579, Email: firstname.lastname@example.org