IVA FAQ

Q1. How do I know if I qualify for an IVA

A To qualify for an IVA the debt normally needs to be at least £15000-£20000 and should include all interest and charges.

You also need to be able to afford the monthly payments which will depend on how much you owe and how much you can afford. Payments are subject to annual review and any lump sum you can offer will be taken into account when proposing monthly payments. The Debt Advisor will sit down with you and work out exactly how much money you could realistically spare each month. If your circumstances do change you are obliged to contact your Insolvency Practitioner as soon as possible.

Q2. I have my own company – do I qualify for an IVA?

A As a Director of a Limited Company you are unable to declare yourself personally bankrupt and retain your position as a director which makes the IVA a suitable solution for you. If you are a sole trader you may either go bankrupt or do an IVA without changing your occupation.

If you decide to propose an IVA, you will need to present your business accounts, tax and VAT returns and trading projections to your Insolvency Practitioner. It is important that you are up to date with your tax calculations because the Inland Revenue will be taking a closer look at you affairs. If you owe the Inland Revenue money you must include them on the list of creditors on your IVA proposal

Q3. Can I do an IVA together with my partner?

A If you both have unmanageable debts you may propose an IVA simultaneously. You would be making separate proposals however they would be read together and considered side by side.

Q4. I am on income support – do I qualify for an IVA?

A If benefits are your sole income, the creditors are more likely to reject the proposal because they do not have the confidence that you will be able to meet the repayments over the entire IVA period. The only exception is if you own a property that has equity in it. In this case you could look at a debt management plan.

Q5. How will an IVA affect my credit rating?

A The record of the IVA will remain on your credit file for 6 years which means you will be unable to take significant unsecured credit. You will be subject to higher interest if you wish to take out a mortgage and to find a larger deposit than usual. If you are first time buyer and considering getting a mortgage wait until your IVA has come to an end. The reason being is you run the risk of losing your house if for any reason something goes wrong whilst you are in an IVA

Q6. What will happen if I already own a house?

A In an IVA you will be able to keep control of your house. However you will need to demonstrate commitment to repaying your creditors by agreeing to release as much equity as you can, contributing towards your debt. An advantage of this is that it may make your payment plan shorter

The equity from your property will be released either at the beginning or at the end of your IVA period however it is usually at the end. A specialist mortgage advisor will help you release equity to offer to your creditors and this will usually happen in the 4 th or 5 th year of the agreement marking the end of your IVA.

In exceptional circumstances a full and final settlement can be negotiated on equity release alone but this would require a large amount of equity and only applies to people who are unable to contribute to a monthly payment plan.

An IVA equity release will leave you with larger mortgage repayments but these will always be affordable. The agreed figure of your IVA payment will act as the bench-mark for future mortgage repayments.

If you do not want to release the equity in your property the alternative is for a friend or family member to put forward the value of the equity which the creditors may accept instead.

Q7. What will happen to my car in an IVA?

A Valuable assets are assessed on a case by case basis. It is possible to keep possession of a car worth a reasonable amount especially if it is required for work or family reasons. If your car is financed on a Hire Purchase the outstanding balance cannot be included in the IVA because it is a secured debt and the finance company will simply repossess the car. You may be able to continue making your HP payments once your IVA is in place however once the HP is completed the extra money would usually be added towards your existing IVA payments. In some cases it may be best to return the car to the finance company straight away leaving you with a debt that can be included within the IVA.

Q8. What will happen to my saving policies in an IVA?

A If you have an endowment policy or a savings account they will have to be released and offered to the creditors as part of the IVA agreement. Pension funds will not be released but possibly suspended for the period of the IVA in order to pay more money back to your creditors on a monthly basis.

Q9. Is an IVA better than bankruptcy?

A This will depend on your circumstances. For homeowners, those who work in the Armed Forces, Police Force, Company Directorships and various legal and financial positions, an IVA is usually a better option.

If you are not a homeowner and your job is not at risk, bankruptcy may be the better option. Bankruptcy involves a 3 year payment plan compared to an IVA which lasts for 5 years. By going bankrupt you are asked to pay back less and will be free from monthly payments sooner rather than later, however it is a very public matter.

Q10. How can I make sure my IVA proposal will be successful?

A For an IVA to be accepted it must clearly be more beneficial to the creditors than bankruptcy and by using the very best representation on the market.

Q11. What is an IVA going to cost?

A IVA companies may charge for their services which will vary from company to company.

The Insolvency Practitioner (or IP) is paid for the work that they do but this money comes from the creditors and not you. The creditors set aside a portion of the money that you contribute and pay it as fees to the Insolvency Practitioner. The IP charges two fees to the creditors:-

1. Nominee Fee usually fixed at £1000-£3000 and is a fee due to Licensed Insolvency Practitioners' for carrying out negotiations with the creditors
2. Supervisor Fee funds the IP to manage your IVA each year and is usually in the region of £500-£1200 per annum.

It is the creditors responsibility to pay this fee but do so out of the money that you offer to them.

Q12. Can I include debts to my family and friends on my IVA proposal?

A You must include them on your IVA proposal by law because if you continue to pay them while in an IVA this could be seen as preferential payment to one creditor over the other. Is also in your best interests to include them on the list of creditors because as official creditors they will be given the option to vote as to whether your IVA is accepted or not. Family and friend are not normally allowed to receive a share of the IVA revenue.

Q13. How do I propose an IVA?

A You should contact your Debt Advisor who will lead you through the different stages of the IVA process.

1. Firstly you and your Debt Advisor will go through a Statement of Affairs (SOA) which is a detailed appraisal of your financial circumstances. The Debt Advisor will then help you decide whether or not the IVA is right for you.
2. If you decide to commit to the IVA you may need to stop paying your creditors. The two main reasons for this are one people are normally in the situation where they must borrow from one creditor to pay another which could be viewed as fraudulent because you would not be considering an IVA if you could pay the money back. Second, it is advisable not to be seen making preferential payments to certain creditors which may hamper the smooth progress of your IVA. You may be advised to continue making minimum token payments to your creditors until your IVA is in place.
3. If you bank with one of your creditors you may need to open a fresh account with a bank who is not one of your creditors. This is because once your bank receives the IVA proposal they may take steps to close your account or reduce the facilities available to you. They also have a ‘right of offset' – they can dip into your account and claim money without your consent to offset the debts you owe them. If you cannot open a new current account with an alternative bank then open a basic account.
4. A hard copy of your SOA will be posted out for you to sign off and return. You will also need to send financial documentation as evidence of the information on your draft IVA proposal
5. Once your SOA has been verified against your documentation, an IP will get involved to finalise your IVA proposal with you and make sure you are both clear about the terms and are absolutely happy to proceed. You will then sign the proposal document.
6. The IP will put forward your proposal to your creditors who will be given two weeks to respond. After this time there will be a creditor's meeting giving them the opportunity to discuss your proposal (which nowadays take place by voting through the post). The creditors may decide to accept, accept with modifications or reject your IVA. If the creditors have asked for modifications the IP will work with you to negotiate a win-win settlement. However if your IVA is rejected you are back to square one.
7. Once your IVA is agreed you must maintain your agreed payments. You must keep the IP informed if your circumstances change and if it is a substantial change a variation proposal may need to be drafted and proposed once again to the creditors. During the period of your IVA you will be subject to a certain level of financial restriction. Once the IVA is over you will have no debt.

Q14. How do the creditors make their decision?

A For an IVA to be successful a majority of the creditors who decide to vote at the creditor's meeting need to accept the proposal. It will then be legally binding on everyone even those who refused. Simply 75% of the value of creditors who respond must accept the proposal.

Q15. After my IVA has been agreed can my creditors change their minds?

A once the proposal has been accepted they cannot pull out or renegotiate the terms as the IVA is a formal, legally binding arrangement.

Q16. What will happen if my IVA is accepted, but I have forgotten to include a creditor?

A If you fail to include a particular creditor in your plan and continue to pay them separately without declaring it this is against the law as you are seen to be giving preferential treatment to a creditor. The IVA paperwork specifically requires you to sign a statement declaring that you have no other creditors. However if it is a genuine mistake approach your IP and explain what has happened, who will then decide what to do. If the new debt reduces the overall creditor dividend by 10% or more the case will have to be reopened, the Creditors' Meeting reconvened and the creditors will be called upon to vote again. Worst case scenario is the IVA may fail and you would risk being made bankrupt.

Q17. When will my creditors stop hassling me?

A Once the IVA is in place the creditors can no longer contact you by law. However to proceed with an IVA you normally need to stop paying your creditors. Firstly because to borrow more money when you intend to do an IVA could be regarded as fraudulent so if paying creditors means borrowing more money then stop making payments. Secondly it is generally unwise to be seen making preferential payments to certain creditors and not others. This may result in you receiving letters from your creditors regarding debt collection procedures being put in place. Once the IVA is in place the creditor action must stop by law so it is in your best interest to assist the IP to get things moving as quickly as possible.

Q18. What will happen if my financial position changes over the IVA period?

A The best step to take is to contact your IP who will then make the necessary arrangements to take into account the change in circumstances and continue with the IVA.

Q19. What if I receive a sudden windfall, such as an inheritance, while in an IVA?

A This will need to be contributed towards your debt. If it adds up to more than your total IVA contribution you will pay back more to your creditors than first agreed. Ultimately you are required to pay of all your original debt if you can afford to do so.

Q20. Can I have a bank account when I am in an IVA?

A You can hold either a basic account or current account. If your present bank account is one of your creditors it may be best to open a new account with another bank before your IVA is proposed. This is because the bank may use their ‘right of offset' to take money from your account without your consent to help repay your outstanding debt. Also once your bank receives your IVA proposal they may reduce your current account to a basic account or close it down altogether.

Since your IVA is a private and confidential arrangement, your new bank will not know you're in an IVA unless you tell them and will not be at risk as result of your IVA.

A current account normally issues you with a debit card and cheque book. If your credit rating is poor you may still be able to open a basic cash card account with no lending facilities and you do not usually get a debit card.

When looking for a new bank or building society, make sure that it is not linked to a bank you owe money to.

If you are self-employed sole trader and have a business account with a creditor, open up a new business account with somebody else for the same reasons given. If you find it impossible to open a new business account because of your bad credit rating then there may be an option to leave your bank debt out of the IVA so that you can continue to run your business. This will only work if your credit rating is bad and your bank is not a primary creditor.

.