IVA stands for Individual Voluntary Agreement.
An Individual Voluntary Agreement or an IVA is an alternative to bankruptcy for people struggling with debt.
IVAs are designed for people with significant debt problems, to be eligible for an IVA you must have unsecured debts of £15,000 or more.
With an IVA, a formal arrangement between you and creditors will be made. The arrangement will see you making reduced payments to your creditors for a fixed period, usually five years, in order to pay off a percentage of what you owe. Once the five year period is over and you have made all of the agreed payments, your IVA will be successfully completed and your outstanding debt will be written off.
As an IVA is a legally binding agreement, it has to set up by a licensed professional, an Insolvency Practitioner.
When applying for an IVA, a Financial Solutions Advisors will discuss your financial circumstances with you and determine how much you can realistically afford to pay off of your debts each month, this will be calculated and a repayment amount will be agreed with you. This information will be then passed to the Insolvency Practitioner who will draw up an IVA proposal to present to your creditors.
Your creditors will be called to a creditors meeting to vote either for or against the arrangement. For an IVA to be approved, 75% of your creditors in monetary value must vote for it.
There are two kinds of fee involved in an IVA – the Nominee’s fee and the Supervisor’s fees. Here’s an example of the fees and payments on a typical client’s IVA:
|Typical monthly repayments (60 months/five years)||£250|
|Total paid by client (including fees)||£15,000|
|Total unsecured debt written off on completion||£45,000 (75%)|
Example based on a client, with approx. £60,000 of unsecured debts who completes a 5-year IVA and has no equity in any property. Fees shown include VAT where applicable.
As a formal insolvency procedure, an IVA is a legally binding agreement with your unsecured creditors and requires an Insolvency Practitioner (known as an IP) to act on your behalf.
This is a fixed fee that will cover the work that goes into setting up your IVA:
Supervisor’s fees cover the ongoing supervision and maintenance of your IVA all the way through, this means:
After the nominee’s fee has been paid, a percentage of each monthly payment will be taken as Supervisor’s fees, as detailed in your IVA proposal.
Keeping up with your monthly payments in an IVA is essential, if you fail to make payments, your IVA may fail, leaving you liable for the remaining balance and any costs already incurred. IVAs do provide some flexibility, you may for example, be allowed to take a small ‘break’ from your payments if you come up against unexpected costs.
Throughout your Trust Deed (typically 3 years), you will pay a flat fee every month. Example of the fees and payments on a Trust Deed:
|Total repaid by individual||£9,000|
|Total unsecured debt written off at completion||£21,000 (70%)|
|Typical monthly payments (36 months/3 years)||£250|
|Fee element included in monthly payment (36 months/3 years)||£110|
Example with approx. £30,000 of unsecured debts completing a 3-year Trust Deed and has no equity in any property. Fees above include VAT where applicable.
The fee will be taken out of your monthly payments thus not affecting the amount you pay each month.
Your monthly payments will be collected in a ‘creditor’s pot’ after the flat fee has been deducted from this pot; your creditors will receive their payment.
The fee covers the costs involved in setting up your Trust Deed. The fees also pay for the ongoing supervision and maintenance of your Trust Deed until completion:
It is essential that payments to your Trust Deed are honoured, or it could fail – in which case you’d be liable for the remaining balance and any costs already incurred.
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