With the current level of personal debt increasing daily many more people find themselves struggling to make ends meet. Many families make the difficult decision each day which bill to pay and how the can save on food. If you are among them, or feel that you are starting to struggle you are far from alone. A recent report from the National Audit Office estimated that that up to 8.3 million people in the UK are unable to pay their bills or debts.
There are several options available to you if you are one of them, these include consolidation, debt management, debt relief order, bankruptcy and IVA.
At this time we will look at the IVA.
This is a scheme that was first introduced by the Government in the Insolvency Act 1986. This is why some sales companies will refer to it as “A Government Scheme to write off your debt”.
An IVA is a legally binding agreement between you and your creditors by which you usually agree to pay what you can afford over a defined period. Then at the end of the period your debts get written off and you become “debt free”. There are other “forms” of IVA, for example in some instances a “one off payment” may be accepted, but as the monthly payment form (usually over 5 years) is by far the most common this is what we will look at.
In an IVA creditors can not charge any interest or charges and can not take any recovery action against you. This is legally binding prohibition that provides you protection to allow you to manage your finances in peace.
An IVA is not bankruptcy, but it is a formal insolvency procedure and as such you need an insolvency practitioner (IP) to help you set up and run (“supervise”) your IVA.
How does it work.
In most cases you will work with your IP to agree a monthly payment that is affordable, but also fair to both you and your creditors. The IP will usually use expense guidelines that have been agreed with consumer and creditor groups to ensure the offer you make is acceptable. However, these are just guidelines if you feel you can not afford to live on the figures being suggested you must speak up and explain how your situation is different. There is no point being pushed into a payment you can not afford to pay.
Once you agree a figure the IP will help you draft the formal offer to be put to creditors, this is known as your proposals. This document will govern how you live financially for the next five years and so it is crucial that you agree with everything in it and that everything in the proposals is true.
The proposals are then put to your creditors for what is known as a decision procedure (a meeting). It is very unusual for there to be an actual meeting and most creditors will just send their vote by email or letter. If your proposals are accepted you are in your IVA.
How long will an IVA last?
Every IVA is an individual agreement, but in the vast majority of cases an IVA runs for five year (60 months). This period may be extended if your situation changes in the IVA or if you own a property and have equity that you can not release. We will examine this in more detail in later blogs. But if you have any queries about how an IVA may affect your property please contact us, or for the Citizen’s Advice Bureau.
During the IVA you make your payments each month, your IP collects these, takes out the agreed costs and fees and then distributes the balance to creditors.
At the end of your IVA you will receive a Certificate of Completion and you will no longer have to make any payments. Your IP will update the Insolvency register and then the credit register will be updated.
If you wish to discuss this, or any other matter, please do not hesitate to contact us for a free no obligation confidential chat.
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