In the United Kingdom, Individual Voluntary Arangements (IVAs) are a formal alternative for individuals wishing to avoid petitioning for their own bankruptcy.

An Individual Voluntary Arrangement allows a debtor to repay their what they owe for as little as 25 per cent of the original balances in a binding plan in which the creditors eliminate interest.

The IVA was established by the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtors unsecured creditors via a Insolvency Practitioner. The proposal is presented to the debtors unsecured creditors versus the debtor opting to petition for bankruptcy.

Creditors (normally) take a commercial decision at a meeting of your creditors called to consider the IVA proposal and vote on a poundage basis. To be approved it requires a majority of 75% of those voting - where connected parties (such as family) vote, then of those voting in favour, >50% must be unconnected.

In the UK, an increasing number of consumer debtors with overwhelming levels of debt are turning to specialist debt advice organisations that offer protection from bankruptcy via the use of an Individual Voluntary Arrangement. Many debtors are also opting to move away from Debt Management Plans as a way of achieving resolution from debt problems as they do not offer a binding agreement upon thier creditors.

It is normally advantageous to set up an Individual Voluntary Arrangement before becoming bankrupt but you can propose one afterwards; if an Arrangement is approved post-bankruptcy then the debtor can apply to the Court for an annullment of the bankruptcy order.

If an IVA is proposed after bankruptcy, it is possible to nominate the Official Receiver to be the supervisor of the arrangement. The Arrangements offered by the Official Receiver are very restricted and have not proved very popular. This type of arrangement is called a Fast Track Voluntary Arrangement and is only suitable in certain cases.

IVA Avantages And Disadvantages

IVA Advantages

• The debtor knows that they will be out of debt in five years or less. The repayment plan is not open-ended like a [[wiki:debt_management_plans|Debt Management Plan]] is.
• There isn’t the stigma or publicity that accompanies bankruptcy.
• A business can continue to trade and generate income.
• The debtor, via the [[insolvency practitioner]], is involved in the choice of assets made available to the creditors since the arrangement is designed to suit the debtor’s situation. All this is providing the creditors are no worse off than if bankruptcy had taken place.
• Administration costs should be lower than bankruptcy, enabling higher payments for creditors.
• Creditors can still claim tax relief against bad debts just as with bankruptcy.
• Creditors who vote against the IVA are still bound by it as long as 75% of the creditors in terms of the amount owed agree to it.
• Creditors likely to recognise that they must accept less than all the money owed.
• The debtor does not suffer from the same restrictions as those imposed on bankrupts. For example, a debtor can still be a company director, in the armed forces, hold public office, retain their professional status or trade under a business name.
• The debtor is able to operate a normal current account, as long as it does not have an overdraft facility.
• Unlike a Debt Management Plan, an IVA is a binding agreement between the consumer and the creditor. This prevents the creditor from changing the terms latter on during the repayment period.
• IVA monthly payments are often very affordable. See the IVA payment calculator for an example.

  IVA Disadvantages

  1. The home and assets of the debtor can still be at risk if the creditors decide not to exclude them.
  2. If IVA payments are not kept up then the IVA will be failed by the IVA supervisor.
  3. Should the IVA fail, the debtor can still be made bankrupt. If this happens, the costs of the IVA will be added to the debts.
  4. All IVAs are recorded in the DTI register and will almost automatically appear on your credit file. This could affect any future applications for credit.

IVA Procedure

Completing an IVA is a relatively simple affair. The amount of time it takes is primarily dependent on two factors, the consumer and the creditors.

The IVA process is broken down in steps below:

1. Consumer identifies preferred IVA provider. This can become overwhelming since there are many IVA providers available. However the best advice is to contact a preferred IVA provider and find one that you are most comfortable working with.
2. Once you have identified the preferred IVA provider you are comfortable working with, and you are feeling some pressure to get a solution in place as quickly as possible, then provide the necessary information to your preferred IVA provider as quickly as possible.
3. Required IVA documentation will be gathered.
4. The written IVA plan, or proposal, will be written and supporting documentation gathered for a professional presentation and fair offer to your creditors.
5. The preferred IVA provider will contact your creditors and submit a Nominees Report that outlines for the creditors the merits of the IVA offer presented.
6. If there is a pressing or urgent debt situation that need immediate intervention then an Interim Order will be submitted to the court to provide immediate legal protection while the IVA is finalized by your preferred IVA provider.
7. A meeting of your creditors is scheduled by your preferred IVA provider. Technically it is called a meeting but in reality creditors rarely if ever show up. The major creditors vote by proxy through their assigned representatives.
8. Once the appropriate voting percentage of creditors accept the plan then the IVA repayment plan becomes binding on all your creditors, even those that did not vote in favour of the plan, and your creditors will no longer trouble you.

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