What is an IVA?
An Individual Voluntary Arrangement or an IVA is an agreement between your creditors and you. This is a legally binding arrangement that usually lasts 5 years. During this period, you are expected to make affordable payments to your debtors after setting aside money for your bare essentials like utility bills, living expenses and payment towards other secured debts like mortgage payments. You will need a licensed insolvency practitioner to set up the IVA for you. The Iva should cover all your unsecured debts. Upon successfully setting up the IVA, all future interest and charges will remain frozen and creditors are legally prohibited from demanding additional charges.
Monthly Payments Under the IVA
In most situations, an IVA runs for 5 years, and your monthly payment is determined after setting aside funds to meet your living expenses like utility bills, food expenses and other charges. The monthly payment will be reviewed at regular intervals by an administrator and any increase/decrease in your income will be appropriately factored into the monthly payments.
Significant Part of Your Debt Can be Written Off
At the end of the 5 year period, outstanding debt will be written off. You can expect up to 70% of your unsecured to be written off this way. For home owners, though their home may not be at risk, at the end of 5 years, they may have to release the equity to pay for the debtors.
The Process
To understand the IVA better and determine that this is the best solution available to you under the circumstances, you are better off consulting a debt expert before embarking on the further steps required. The debt expert will go over all the details provided by you before arriving at a conclusion. He would then proceed to make an assessment of your disposable income after setting aside moneys to pay for minimum living needs. The disposable income so arrived at will represent the monthly payment under the IVA. Your creditors will then be called upon to vote on the arrangement. The IVA binds all the parties involved legally and at the expiry of the 5 year term, all debts covered under the agreement are deemed fully discharged. This is disregarding the amount that you have paid towards discharging your debts. All through the 5 year term, the Insolvency Practitioner will be monitoring the progress of the agreement.
Covenants
If your mortgage is linked to endowment policies, you may be called upon to encash the policy and remit the proceeds into the IVA arrangement. Similarly any significant equity in your home may also be released towards the debt payment, usually at the end of the 5 year period. These factors may also weigh on the creditors according their approval to the IVA proposal. However, the limited time frame of 5 years and the presence of an agreement with creditors to make one reduced payment to cater to all debtors may be advantageous in some circumstances. Once the agreement comes into force, you will also save yourself from the cascading effect of interest and penal charges that are added in the normal course.