What Is an Individual Voluntary Arrangement (IVA)?

Understanding an Individual Voluntary Arrangement

An Individual Voluntary Arrangement, commonly known as an IVA, is a formal and legally binding agreement established in the United Kingdom. This arrangement is made between an individual and their creditors to repay debts over a defined period. The primary purpose of an IVA is to provide a structured debt solution for individuals facing unmanageable financial burdens. It stands as a formal alternative to bankruptcy, offering a pathway to debt resolution under specific legal frameworks.

An IVA functions as a comprehensive debt consolidation tool, enabling an individual to manage their financial obligations through a single, affordable monthly payment. A significant feature of an IVA is the freezing of interest and other charges on included unsecured debts from the date the arrangement is approved. This provision helps prevent the overall debt from increasing further during the repayment term.

Another characteristic of an IVA is the potential for a portion of the total debt to be written off at the conclusion of the arrangement. The typical duration for an IVA is five to six years, during which time the agreed-upon payments are made to creditors. Common types of unsecured debts that can usually be included in an IVA are credit card balances, personal loans, overdrafts, and store card debts. Secured debts, such as mortgages or car finance, are generally not included within an IVA.

Determining Eligibility

To be considered for an Individual Voluntary Arrangement, an individual must satisfy specific criteria. A common requirement is possessing a minimum level of unsecured debt, typically around £5,000 or more, although this threshold can vary based on individual circumstances and the practitioner involved. The individual must also owe money to at least two different creditors to qualify for an IVA.

Demonstrating a regular source of income is another prerequisite, as this ensures the ability to make consistent payments into the arrangement. The IVA framework is specifically designed for individuals residing in England, Wales, or Northern Ireland. These eligibility requirements help determine if an IVA represents a viable option for managing an individual’s debt situation.

The Process of Establishing an IVA

Establishing an Individual Voluntary Arrangement involves distinct preparatory and procedural actions, beginning with the individual seeking professional guidance. The initial step requires consulting with a qualified professional, specifically a licensed Insolvency Practitioner (IP). During this preparatory phase, the individual must meticulously gather all relevant financial information, which includes detailed records of income, a comprehensive breakdown of monthly expenses, and a clear inventory of any assets owned.

A complete list of all outstanding debts and the names of corresponding creditors is also essential for this stage. Based on this thorough financial disclosure, the Insolvency Practitioner collaborates with the individual to draft a formal IVA proposal. This crucial document typically outlines a proposed payment plan, details each debt included, explains the reasons for the individual’s financial difficulties, and provides information regarding any assets that might be realized to contribute to the arrangement.

Following the preparation of the proposal, the process transitions to formal procedural steps. The Insolvency Practitioner is responsible for submitting the drafted IVA proposal to all listed creditors. A pivotal event in this stage is the creditor meeting, which serves as a formal assembly, often conducted virtually or through proxy votes, where creditors review the proposal. During this meeting, creditors cast votes on whether to accept the IVA proposal as presented, reject it outright, or propose specific modifications.

For the IVA to be formally approved, a statutory threshold requires that at least 75% of creditors by value who vote must agree to the terms. If the proposal receives the necessary approval, with or without modifications, the Individual Voluntary Arrangement becomes legally binding on all creditors listed in the proposal, regardless of how they voted.

The Role of the Insolvency Practitioner

The Individual Voluntary Arrangement process requires a licensed Insolvency Practitioner (IP) for administration and supervision. The IP functions as an impartial third party, bridging the communication and negotiation between the debtor and their creditors. Their responsibilities include assessing the individual’s financial situation to determine the suitability of an IVA.

The IP assists in drafting the IVA proposal, ensuring it adheres to legal requirements and presents a repayment plan. They negotiate with creditors on the individual’s behalf to secure agreement on the proposed terms. The IP also oversees the creditor meeting, facilitating the voting process and ensuring adherence to procedural guidelines. Once an IVA is approved, the Insolvency Practitioner supervises its execution, collecting payments, distributing funds equitably to creditors, and conducting annual reviews.