If you are dealing with personal debt that has become unmanageable, an Individual Voluntary Arrangement is one of the most widely used formal solutions available, and also one of the most misunderstood. The number of IVAs registered in England and Wales has been consistently high, and the reason is straightforward: for the right person in the right circumstances, an IVA is a structured, legally protected way to deal with debt without the more significant consequences that come with bankruptcy.
What an IVA Actually Is
An IVA is a formal, legally binding agreement between you and your unsecured creditors, supervised by a licensed insolvency practitioner. It sets out a repayment plan based on what you can genuinely afford, typically spread over five or six years, and once that plan is complete, any remaining unsecured debt covered by the arrangement is written off. During the term of the IVA, creditors cannot pursue you for the debts included in it, which means the letters, the calls and the pressure stop once the arrangement is in place.
For the arrangement to proceed, creditors representing 75% by value of the debt must vote to approve the proposal. Once approved, it is binding on all unsecured creditors included in it, including those who voted against it.
What Debt Is Covered
An IVA covers unsecured debt, which includes credit cards, personal loans, overdrafts, store cards, payday loans and HMRC debt in many cases. It does not cover secured debt such as mortgages, or certain priority debts including student loans, child maintenance and court fines. Understanding which debts fall inside and outside the arrangement is an important part of the initial assessment process, and a licensed insolvency practitioner will work through this with you before any proposal is drafted.
How It Compares to Bankruptcy
The two are often mentioned in the same breath, but they are meaningfully different in several respects. An IVA allows you to retain assets such as your home and vehicle in most cases, whereas bankruptcy involves a more comprehensive assessment of your assets and may require you to release equity or surrender certain property. An IVA also tends to carry less stigma in practical terms, and for people in certain occupations where bankruptcy would have professional consequences, it is often the more appropriate route.
The IVA does appear on your credit file and on the Individual Insolvency Register for the duration of the arrangement and for a period afterwards, which is worth understanding in advance, though the impact on your credit profile needs to be considered alongside the impact of continuing to carry unmanageable debt without a formal solution.
Who an IVA Is Suitable For
An IVA works best for people who have a regular income and can commit to a monthly payment over the term, but whose total unsecured debt load has reached a point where meeting all of their obligations in full is not realistic. It is also suitable for people who want to protect assets, avoid the restrictions that come with bankruptcy, and deal with their debt in a structured and dignified way.
The quality of the proposal matters considerably. A well-constructed IVA, put together by experienced practitioners who understand how to present your circumstances to creditors, produces better outcomes than one that has been rushed or poorly evidenced. Creditors see a great many IVA proposals and they respond well to ones that are credible, transparent and realistic.
At Adcroft Hilton, we work with clients from the initial assessment through to the completion of the arrangement, ensuring that the proposal reflects your circumstances accurately and gives you the best possible platform for a successful outcome. If you need help, please get in touch.
Adcroft Hilton: Debt, Insolvency & Bankruptcy Specialists
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