Individual Voluntary Agreement (IVA) is a legal contract between debtors and creditors that help debtors to cut their debts to an affordable level and clear it over a fixed period of time. It is governed by Part VIII of the Insolvency Act 1986 of UK and presents an alternative of bankruptcy to the debtor. An IVA can be for a trader, partner or an individual based on income, capital, third party payment or a combination of all.
There are many advantages of IVA over bankruptcy. The top 5 advantages of possessing an IVA are:
• Home and Job are Protected: IVA allow debtors to retain control over their home unlike bankruptcy, where the control is vested with the Trustee. The property may be excluded from an IVA proposal. In some cases, restriction on the property may be registered by the supervisor so that the consent of the debtor is required to sell or re-mortgage it.
An IVA does not affect the professional status of a debtor. They can continue with their professional practice before they got an IVA. A debtor possessing an IVA can even hold public office.
• Financial Benefits: If the agreed terms of an IVA are followed, a debtor pays back only a part of the debt while up to 75% of the debt may be written off. IVA is a legally binding agreement making it impossible to add further interest or charges to the debt. A fixed monthly payment of the debt is planned depending upon the budget of the debtor, for a period of 3-5 years. After that, the remaining debt is written off. This helps debtors to manage their resources and recover from financial crisis.
• Social Benefits: IVA is a private agreement between a debtor and creditor in the presence of a legal supervisor. There is no publicity in the local newspaper about this and as the home and professional aspect is not disturbed, a debtor is saved from social humiliation.
• Legal Protection: IVA protects debtors by ensuring that creditors cannot take enforcement action to recover the debt. Once agreed, creditors cannot change their mind. They can only submit a claim to the IVA and get paid by the supervisor. Thus, IVA protects debtors against possible court action.
• Financial Credibility: A debtor possessing IVA can open a regular bank account without overdraft facility. Unlike bankruptcy, IVA statutorily does not restrict debtors from obtaining credit.
The cost of administering IVA is lower than bankruptcy and it is ideal for those debtors who have a high regular monthly income. It is also suitable for those who may lose their job or have to shut down their small business if they go bankrupt. Honest declaration of assets and anticipated future earnings of the debtor, and ensuring higher return to creditors, are two main features of a successful IVA. All these attractive features have made IVA a popular tool of debt management for debtors and creditors.
Conor Duffy shares his expert views on the advantages of
IVA.
