0

Individual Voluntary Arrangement

An Individual Voluntary Arrangement, which generally is shortened to IVA, is a way for people or businesses (in which case it is called a Company Volountary Arrangement) with otherwise irresolvable debt to deal with that part of their indebtedness which is in the form of unsecured loans. Typically these are credit and store card debts, personal loans and bank overdrafts. Secured debts such as mortgages and hire purchase contracts are excluded from IVAs with the exception that, in certain circumstances, some types of hire purchase agreements may be included.

IVAs were included in the Insolvency Act of 1986 as an alternative form of insolvency to bankruptcy. In Scotland the law is a little different and a very similar arrangement is called a Protected Trust Deed (PTD). The principal difference between a PTD and an IVA is that usually a PTD lasts for three years whilst an IVA lasts for five years.

There are significant advantages of an IVA over bankruptcy. Possibly the most important one is that an individual entering into an IVA is unlikely to lose their principal home. Although any equity remaining in the home at the end of the term of the IVA is likely to be used to further reduce residual debts, the home itself will not be seized. With bankruptcy it is highly likely that the bankrupt’s home will be seized and sold by the official receiver and the proceeds distributed to the various creditors.

Also with an IVA there is no future restriction on the individual becoming a company director or starting a business, whilst it is illegal for an undischarged bankrupt  to do so.

In terms of credit rating, although both bankruptcy and an IVA will impinge seriously on the debtor’s credit rating, it is likely that an IVA will be viewed by the ratings agencies as a little less negative due to the fact that an IVA implies a strong commitment to repay at least a proportion of debts, however in both cases the facts of the insolvency will remain on the debtor’s credit rating for six years.

It is only possible to implement IVA through a licensed insolvency practitioner.