An IVA (individual voluntary arrangement is a debt solution for consumers who have unmanageable debts and who want to avoid bankruptcy. An IVA is regulated by the Insolvency Act and can only be set up by a licensed insolvency practitioner.
An IVA is available to borrowers who can not repay their unsecured debts within a reasonable time frame, usually 8 to 10 years. These borrowers will offer their creditors five years of repayments at a level they can afford, with a contribution from any assets, such as equity in their property. Creditors are presented with a detailed proposal and then vote on whether or not to accept the terms offered. If over 75% of creditors vote to accept, the arrangement becomes binding on all involved.
For creditors to agree an IVA, they must believe the solution will offer them better returns than the alternatives. Most IVA proposals will contain a comparison of bankruptcy return against IVA returns. Bankruptcy usually provides lower returns than an IVA because it is an expensive process and income payments for bankrupts are only required for 3 years not 5.
Debtors who choose the IVA option rather the bankruptcy must be prepared to pay more money overall to clear the debts. This can still be beneficial fro them because they will avoid many of the restrictions a bankruptcy would impose. An IVA will allow more flexible treatment of the equity in their homes.
The downside of an IVA is that if debtors break the terms of the arrangement, they will be at the mercy of the creditors. It is therefore important that a debtor only agrees to terms that they can comply with i.e afford.