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Factsheet | Individual Voluntary Arrangements (IVA)

What is an IVA?

There is an alternative to bankruptcy called an 'individual voluntary arrangement' (IVA). This is a formal arrangement through the county court to pay an agreed amount off your debts over a shorter period. Any debt left at the end of the IVA is written off. IVAs can be set up in a number of different ways, either as a monthly instalment plan over a fixed term (normally five years), or a short term arrangement if you have a lump sum to put forward. Some IVAs are a mixture of both.

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Is an IVA suitable for me?

An IVA may be a suitable option for you if you have money available every month to pay towards your debts and/or a lump sum or assets that could be included. You would normally need to have the following:

• at least 3 debt totalling £15,000 or more;
• two or more creditors, and;
• be able to pay back at least 20p for every £1 of the debt that you owe to them.

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What is the procedure for an IVA?

An IVA has to be set up by an insolvency practitioner (IP). An insolvency practitioner is usually an accountant or solicitor who is authorised to set up IVAs. Once an IP has agreed to make an IVA proposal for you they can apply to the county court for an 'interim order'. This stops your creditors from starting bankruptcy proceedings against you.

It also stops any other enforcement action without the court's permission whilst the interim order is in force.

INFORMATION
From 1 January 2003 you can put forward an IVA proposal without applying for an interim order first. This may reduce your costs but means your creditors can still take enforcement action against you until the IVA is agreed.

You can ask for an IVA even after you have gone bankrupt. See the section on 'Fast Track IVAs'.

There are no rules on how much debt you have to be in before you can ask for an IVA.

• The IP sends the IVA proposal to your creditors and arranges a formal meeting called a 'creditors meeting', giving the creditors at least 14 days notice.
• Check with the IP and make sure that all your creditors have been contacted. If creditors have no notice of the meeting they do not have to stick to the terms of the IVA and can pursue you for their debt separately.
• At the meeting creditors have to vote on whether to accept the IVA. Often creditors send their vote to the IP and don't actually come to the meeting.

If 75% of your creditors 'by value' who actually vote agree to the IVA then the rest are bound by the IVA even if they voted against it or did not vote at all. 'By value' means the creditors to whom you owe 75% worth of debt not the number of creditors you have. So if the creditors to whom you owe the highest amount vote against the proposal then the IVA may not go through.

• Sometimes creditors will haggle about the terms of the IVA and ask you to agree to pay more every month or include assets you do not want to lose. They may ask you to make payments over a longer period.

Once the IVA is agreed your IP will supervise the arrangements and make sure you make the payments. If a creditor comes to light after the IVA has been agreed, they can claim the amount they would have received as if they had been included in the IVA at the start.

WARNING
If the IVA does not go through then you are back to the same position as you were in before you made the application. You will have to negotiate with all your creditors separately. You also may have lost money in fees and costs for the IVA application. Think carefully before you decide what to do next. It may not be a good idea to apply for a new IVA unless your circumstances have changed and you can improve the proposal you made before. Phone us for advice.

INFORMATION
Bear in mind that if you have applied for an interim order, you have to wait 12 months before you can apply for another interim order. You don't usually need one to apply for an IVA.

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What is the IVA protocol?

The Insolvency Service has drawn up an IVA protocol which applies from 1 February 2008.
This provides guidelines for IPs on how a straightforward consumer IVA should be put together and how the IP should behave. The protocol has been set up to make the IVA process quicker and simpler for IPs, creditors and for you as the applicant.

The IVA protocol covers the following areas:

• what the IP should do to check your income and outgoings;
• your creditors should accept your figures if they fall within the set limits;
• how any equity in your home should be dealt with (see the section: 'What about my home?';
• your IP should make sure you have had full advice on other ways to deal with your debts;
• what to do when your income and outgoings go up or down, and what should happen if you miss any payments.

WARNING
Not all IPs use the IVA protocol and because each IVA can be very different, not all IVAs can follow the protocol. Make sure you ask about the IVA protocol before you agree an IVA proposal with your IP. If your IP says that your case is not straightforward and you cannot have an IVA that follows the protocol, make sure you understand why. If you are not sure about this, phone us for advice.

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What about my home?

• If you are a home owner, your IP will normally want to include a special section within your IVA proposal called an 'equity clause'. This means that during the IVA (normally in year 4) you would be expected to apply for a secured loan or re-mortgage to pay back some of the debts. If you cannot do this, your IP may want you to sell your home instead.
• However if your IVA follows the IVA protocol, there is some protection. The protocol says that if you are unable to get a re-mortgage or secured loan, you should keep paying instalments under the IVA for an extra 12 months rather than selling your home.
• If you are able to re-mortgage or get a secured loan then the repayments should be affordable, and you should be left with at least 15% of the equity in your property.
• If you are unable to maintain the payments on your IVA there is a risk that you may be made bankrupt, which could result in you losing your home.

WARNING
You need to be careful when looking at taking out a new mortgage or secured loan. It may be difficult to find a loan from a reputable lender at a good rate of interest because your credit rating may not be good enough.

You must discuss this with your IP and get advice to make sure you can afford the new payments or you could be putting your house at risk.
Phone us for advice.

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How do I find an insolvency practitioner?

WARNING
Be careful of companies who suggest the can put you in touch with an IP if you pay them a fee. These are known as 'ambulance chasers'.
You can contact an IP directly without going through another company.

There is a searchable directory of IPs on the Insolvency Service website.

The Insolvency Practitioners Policy Section
The Insolvency Service
PO Box 203
5th Floor
21 Bloomsbury Street
London
WC1B 3QW
Tel: 0845 602 9848
www.insolvency.gov.uk

There is a searchable directory of IPs on the website of the IP trade body.

The Association of Business Recovery Professionals
8th Floor
120 Aldersgate Street
London
EC1A 4JQ
Tel: 020 7566 4200
www.r3.org.uk

ADVICE
There is an Insolvency Service publication called 'The Directory of Authorised Insolvency Practitioners'. This is kept in local reference libraries. It lists IPs by area and who regulates them. If they are not licensed then you should not use their services.

We can also give you details of some IPs but are not in a position to actually recommend any companies listed. Phone us for advice.

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Fees

All IPs will charge fees for setting up and supervising an IVA. Fees vary between different firms but typical fees can be £4,000 or more.

These fees are usually added to your debt and paid in with your monthly payments over the term of the IVA. Many IPs will offer an initial free meeting to look at whether an IVA is suitable in your situation. Some IPs will demand an up-front fee before putting forward the IVA proposal. This could mean that if the proposal is refused by your creditors, you will lose the money you have paid in.

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What if I can't pay the IVA once it is agreed?

If your circumstances change and you are unable to keep up with your payments, your IP can ask the creditors to accept lower payments and agree a 'modified' IVA. The IP may charge you a fee for doing this. If you cannot make any payments or your creditors refuse to accept lower payments, your IVA may fail. If this happens, the IP may allow you to consider other options. The IP is able to petition for your bankruptcy, but this will not happen in all cases.

If your IP decides not to make you bankrupt, then your creditors can take action against you instead. It is very important to agree payment arrangements with each of your creditors separately to stop this happening.

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What are the advantages of an IVA?

• You may well be running a small business which would be difficult to keep going if you were bankrupt.
• You may be in a profession where you could lose your job if you go bankrupt such as accountancy/police or armed forces. But be careful, in some professions your employment may be affected by an IVA. Check with your professional body.
• You may have access to a large lump sum and want a formal arrangement with your creditors to accept the lump sum and write off the rest of the debts.
• You will not automatically lose your house or other assets. See the section 'What about my home?'.
• You will not have the same restrictions on you as you would if you went bankrupt, e.g. you can still use your bank account without saying you have an IVA.

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What are the disadvantages of an IVA?

• If you do not keep to the terms of the IVA then the IP or your creditors can make you bankrupt.
• If creditors do not accept the IVA proposal you are back to square one and your creditors can carry on trying to pursue you for your debts.
• If you paid an up-front fee for your IVA and it is not accepted then you will have lost the fee and be in a worse position than when you started.
• If you own your house the IP and creditors may make you agree to re-mortgage your home as part of the IVA. If you are unable to do this you may lose your home. See the section: 'What about my home?'.
• There is a risk that the IVA is agreed on the basis of monthly payments that you cannot afford long term. You must be very careful that the payments are set at a realistic amount in the first place.
• If your circumstances change and you can no longer afford the payments your IVA may end if the IP cannot persuade the creditors to accept a new agreement.

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Fast track IVA

From April 2004, under the Enterprise Act, there are new rules on how to get an IVA after you are made bankrupt. You can apply for a Fast Track IVA by putting a proposal to the official receiver even after you are bankrupt.

The official receiver may agree to act as supervisor of the IVA if they feel it will produce a better deal for your creditors than they would receive through bankruptcy.

• There are set fees for this process so costs are reduced.
• There is no formal creditors' meeting.
• The proposal is sent by post and creditors can either take it or leave it.
• The IVA proposal cannot be modified.
• If the IVA is agreed, the official receiver will annul your bankruptcy order.
• If your IVA fails the creditors could make you bankrupt again but the official receiver will not take any further action.

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Where will details be kept about my IVA?

Public register

Records of IVAs are kept on a public register called the Individual Insolvency Register. You can make a free search either in person, by post or on-line. A copy of the search form can be printed from the website below or you can ask the Insolvency Service to send you a form. Your IVA will remain on the register until it is completed or terminated.

The Individual Insolvency Register
The Insolvency Service
5th Floor, West Wing
45 - 46 Stephenson Street
Birmingham
B2 4UP
Tel: 0121 698 4000
Fax: 0121 698 4406
www.insolvency.gov.uk

You can also search the register in person by visiting your local official receiver's office.

Credit reference agency files

Records of IVAs are normally held for six years on credit reference agency files. If the IVA lasts longer than six years, it will remain on your credit file until the date the IVA ends. The IVA is marked 'complete' by the credit reference agency when they are informed of this by the IP supervising the IVA. Make sure you send a copy of the letter from your IP to the three credit reference agencies so that your credit file is updated.

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Complaints about insolvency practitioners

To complain about an insolvency practitioner you need to find out which authorising body they are registered with. This should be given to you by your IP. You should first make your complaint in writing to your IP. If you are still not happy then write to the authorising body for your IP. There is a useful leaflet called 'How to make a complaint against an insolvency practitioner'. You can get this from the Insolvency Service or phone us for advice.

INFORMATION
If the insolvency practitioner is acting on behalf of a trustee in bankruptcy you need to complain to the official receiver first, followed by the Insolvency Service.

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Useful addresses

Law Society Legal Complaints Service
Victoria Court
8 Dormer Place
Leamington Spa
CV32 5AE
Tel: 01926 820 082
www.legalcomplaints.org.uk

The Competent Authority
The Secretary of State for Trade & Industry
(SoS)
Insolvency Practitioner Unit
4th Floor, Ladywood House
45 - 46 Stephenson Street
Birmingham
B2 4UZ
Tel: 0121 698 4430
www.insolvency.gov.uk

The Institute of Chartered Accountants
(ICAEW)
Silbury Court
412 - 416 Silbury Boulevard
Central Milton Keynes
MK9 2AF
Tel: 01908 248 100
www.icaew.co.uk

The Association of Chartered Certified Accountants (ACCA)
10 - 11 Lincoln's Inn Fields
London
WC2A 3BP
Tel: 020 7059 5917
www.accaglobal.com

The Insolvency Practitioners Association
Valiant House
4 - 10 Heneage Lane
London
EC3A 5DQ
Tel: 020 7623 5108
www.insolvency-practitioners.org.uk

For details of company liquidations or company disqualifications contact:

The Registrar of Companies
Companies House
Crown Way
Maindy
Cardiff
CF14 3UZ
Tel: 0870 33 33 636
www.companieshouse.gov.uk

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Remember: You can always Phone us for advice about any difficulty you are having in dealing with your debts

0808 808 4000

© Copyright National Debtline 1994 (updated December 2008).

Whilst we endeavour to keep the content of our website as up to date as possible, National Debtline cannot be held responsible for any changes in legislation or for developments in caselaw since this information was published.

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