Individual Voluntary Arrangements (IVA's)
Criteria:
Unaffordable debts
The first major requirement to benefit from an Individual Voluntary Arrangement is to have genuinely unaffordable debts.
To be able to demonstrate this point an income versus expenditure planner needs to be completed.
In completing this it is also necessary to understand what amounts your creditors would expect to see for the different types of personal expenditure.
For example were you to spend very high sums on haircuts your creditors would want to question whether this was reasonable before they approved the plan.
Treat Creditors Fairly
To gain acceptance for an IVA 75% of your creditors by value need to agree to a proposal.
This they will do provided your creditors believe you are looking to treat them fairly.
Creditors are less likely to accept proposals if the time lapse between taking a loan or credit agreement out and seeking to write off the debt is very short.
There are no hard on what counts as a short period of time.
Creditors will look sensitively at the underlying reasons why debts have now become unaffordable.
Size of debts
Thirdly the size of debt is important.
Individual Voluntary Arrangements are organized by industry professionals known as insolvency practitioners.
There is a considerable amount of work in building a proposal to creditors, negotiating on your behalf and supervising an arrangement once agreed.
As a result of this the level of debt at which it becomes viable to use an IVA solution is approximately £15,000.
There is tolerance around this figure but debts substantially less than this need to be resolved with an alternative solution.
Types of debts
In establishing what can be included in overall debts the credit card, personal loan and storecard debt are likely to make up the bulk of any proposal.
On top of this money owed to family and friends can be included also utility debts and mobile phones etc.
Numbers of creditors
The number of creditors is the next requirement to satisfy.
The voting system referred to above means 75% by value of your creditors need to vote in favor of a debt write off proposal.
If too few creditors exist it only takes one not to vote in favor of a proposal for the proposal to fail.
For this reason it is generally accepted that an IVA will not be appropriate if less than three creditors exist.
Net dividend
Creditors will approve an arrangement or are likely to approve an arrangement if proposals meet internal requirements on the net dividend they will receive.
This net dividend is expressed as pence per pound dividend.
Now each creditor has their own internal benchmark on what is an acceptable dividend but in practice a proposal for an IVA needs to offer a net dividend (after fees) of approximately 30pence in the pound.
This means putting aside all interest which will be written off can a proposal offer a creditor 30p for each £1 of outstanding capital.
A dividend below this amount is likely to result in case failure.
Affordable
In generating the net dividend of 30p per £1 of capital a proposal must be affordable and sustainable.
There is no point in starting an arrangement if either you or the creditors do not feel you will be able to stick with any plan agreed.
To ensure payments are sustainable a proper income and expenditure assessment needs to be conducted.
This can then reassure both you and the creditors that any payments are sustainable.
Use our FREE Credit Report to see if you are eligable for an IVA.
IVAs: Main
IVAs: Criteria
IVAs: Considerations
IVAs: Costs
IVAs: Merits