• There is life after debt

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    There is life after debt

What is AN IVA?

An IVA is a binding arrangement that a person enters into with their creditors as an alternative to bankruptcy. It is similar to bankruptcy in some ways, but very different in others.

Unlike in bankruptcy, the individual can choose their practitioner and put forward a deal that is most appropriate to their own circumstances. However, their offer is only likely to be acceptable if it meets certain “industry standard” expectations on the part of creditors.

A typical IVA would involve a person making contributions from their income for a fixed period of time (generally 5 years) and/or re-mortgaging their home if there is available equity. All of the money collected is put into a separate account and used to pay for the costs of the arrangement and to pay dividends to the people who are owed money.

At the end of the arrangement, provided the person has stuck to their side of the bargain, any balance left owing is written off in a similar way to a bankruptcy.

The Process

An IVA requires a proposal to be drafted, which is put to creditors at a meeting.

In practice, whilst the proposal is “the debtor’s” proposal, it is in fact drafted upon their behalf by the practitioner on the basis of the information provided. (This is perhaps not surprising as the proposal has to meet 23 different statutory criteria as well as stringent best practice guidelines). The practitioner, called the “Nominee”, must then write a report to the Court and to the creditors stating whether he thinks that the proposal has a good chance of being accepted and implemented. Both the proposal and the Nominee’s Report are then sent to all known creditors, together with voting forms.

The creditors then vote on the proposal at the meeting (usually by submitting votes on paper, without actually attending). Of those creditors who vote 75% must approve for the proposal to be accepted and become binding upon all creditors (whether or not they voted for or against the proposal, or voted at all).

Creditors can propose changes to the proposal (“modifications”) at the meeting. The individual does not have to agree to the modifications but the creditor’s vote will generally state that it is to be counted as a rejection unless their modifications are accepted.

Once the IVA is accepted, the terms can only usually be changed by another meeting of creditors.

“Protocol Compliant” IVA in straightforward consumer credit cases

The Insolvency profession in conjunction with various creditors representatives has devised a form of IVA called a “protocol compliant IVA”. In essence, provided that the deal which is proposed meets the criteria laid down by the creditors, it is likely to be accepted by the creditors.

Protocol compliant IVAs generally provide for the level of monthly income contributions to be fixed in accordance with Consumer Credit Counselling Service guidelines. If the individual owns their own home, this will need to be valued in the forth year of the arrangement and any equity in excess of £5,000 must be put into the pot by way of a re-mortgage, up to 85% of the property’s value.

There are also certain requirements as to dividend payments and practitioner charges which must be met.

For a number of reasons (including the restrictions on practitioner charges), most protocol compliant IVAs are arranged via a small number of very large IVA companies. They are able to process such cases in volume, cost effectively, often without ever having met the client.

PCR will undertake protocol compliant IVA cases where we consider them to be appropriate. However, we insist that all clients are interviewed personally and that an IVA is only introduced where we feel that it truly represents the best alternative for that individual client.

Typically, an acceptable projected return to creditors in a protocol compliant IVA is around 40p in the £. However, this may vary depending upon the circumstances of the case. Lower returns are sometimes (although not usually) acceptable, whereas creditors may press for significantly higher returns if there is sufficient available income or assets.

Bespoke IVA's for traders and more complex cases

IVAs can also be used very effectively in more complex cases to restructure debts and keep control over the process and timing of realising assets.

For example, we have successfully negotiated linked IVAs that provided the joint owners of a property time to pursue a planning application, which enhanced the value of their property to the point where it could be sold for enough to meet all of their debts.

In another instance, we assisted the owner of a taxi firm to restructure his debts into an IVA so that his business could be converted into a limited company, allowing a potential new investor to come on board safely.

At PCR, we believe that every client is different and therefore, each IVA needs to be drafted to cater for the individual circumstances of the case.

In more complex cases, it is not possible to state what percentage of income or return to creditors is likely to be acceptable without a detailed discussion of a person’s affairs and an analysis of the likely financial outcome of any alternatives (such as bankruptcy). Acceptable projected returns to creditors vary so widely in such cases that it is not particularly helpful to try to generalise. Creditors may accept 5p in the £ where a person owes £2.5m, if this is the best they can expect to receive. Similarly, they may insist on 100p in the £ where this is achievable.

We offer free IVA consultations at which we would be happy to provide you with a personalised indication of what we believe would be appropriate in your case.

 

DOWNLOADS FOR FOR PERSONAL INSOLVENCY 

PERSONAL BANKRUPTCY
The Insolvency Service 'Guide To Bankruptcy' 
This guide tells you what happens if you are made bankrupt in England and Wales.
Link to www.gov.uk ››

 

INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
The Insolvency Service 'Options for paying off your debts'
Guidance on possible alternatives for those that find themselves in debt.
Link to www.gov.uk ››

 


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