IVA Overview

There are many different relief options in England and Wales for people with debts out of control. Most of these solutions offer the debtor flexibility to pay a reduced amount of the debt or pay the outstanding amount over a certain period of time. IVA is one of the Debt Relief Programs.

What is an IVA and why would the Creditors accept it?

IVA process ideally takes five years to complete, however, in some cases it may end sooner. The debtor has flexibility as he pays the extra amount from his income left after spending for his basic necessities. In most of the cases the Creditors would also prefer IVA to Bankruptcy.

The reason for this is that IVA typically requires less management cost as compared to Bankruptcy. The Creditor also enjoys the benefit of reclaiming tax and VAT relief.

Who is an Insolvency Practitioner, what role does he play in an IVA?

IVA is a formal and legal process. Therefore, it must be set up by an authorized and licensed tax professional called Insolvency Practitioner (IP). Before you hire an IP, you should assess your financial status i.e. monthly income and expenditures etc. This will help you figure out whether an IVA is most suited for your situation or there is a better alternative.
However, this is a technical process and you may seek the help of a professional.

Insolvency Practitioner has a major role to play during all the phases of an IVA; from proposal to the clearance of all debts. Insolvency Practitioner devises the proposal for an IVA, mediates during the process and helps in documenting and distributing the certificates at the end of your application.
During an IVA the debtor has to make monthly payments to the Creditors, the IP is also in charge of collecting these payments and paying the Creditors.

Is IVA a complex process, how does it actually work?

IVA is far less complicated as compared to its alternatives. However this process is legally binding on both parties and has costs involved. Therefore it is good to get well versed with its term & conditions even if you have hired an IP.

Once you hire an IP, he will assess your current fiscal situation carefully.
Then your IP will prepare a legal document called “Plan Letter”. This document is nothing but a recommended course of action for your IVA process.

One copy will be handed over to you for endorsement. You must read it very carefully and clear the doubts, if any, before signing it. When you return it, your IP will send a copy to each of your Creditors.

The Insolvency Practitioner will formulate a set of proposals for which he gathers the following information:

  • Total amount owed by contacting all the Creditors.
  • Your monthly income, expenditures, Creditors’ details, a short history of how and why the debt was created.

You must read this set of proposal very carefully as the whole process to follow is based on it.

This proposal may also be sent to your local County Court to stop any further prosecution against you i.e. a petition for Bankruptcy.

The IP you hired will arrange the Creditors Meeting. This meeting is chaired by the Insolvency Practitioner and your presence is also required to ask or answer questions, if any. A copy of the proposal will be presented to the each agent of the Creditors. The process of voting will be carried out for acceptance of IVA after all the discussion. A minimum of 75% of the votes must be cast in its favor.
Any amendments deemed necessary in the proposal are made. A Chairman Report is sent to all the Creditor institutes’ heads, which contains the details of Creditors meeting and the results of voting.

Your IP will prepare annual reviews of your income and expenditures. A report containing the results of these reviews is sent to the Creditors to inform them of your current financial status.

When your IVA is accepted, any petition for Bankruptcy is cancelled. Your IVA entry will be included in a public register.

IVA is beneficial for individuals as well as sole traders and partners.

If you are a sole trader, you can eliminate your outstanding debts and keep your business. Also unlike Bankruptcy, you can act as a director of a limited company during your IVA.

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