IVA: Do all my creditors have to agree to the terms?

If you owe more money than you can afford to repay and you’re wondering whether an IVA (Individual Voluntary Arrangement) is the best way for you to clear your debts, you probably have a few questions you’d like answered. Of course, an IP (Insolvency Practitioner) would be able to answer your questions, but some questions are quite straightforward – like this one….

If you do decide to enter an IVA – and your IP is confident it’s the right approach for you – you’ll work with him/her to draw up an IVA proposal, which sets out how you think the IVA could work (e.g. how long it would run for, and how much you’d be able to pay).

Your creditors will all have a chance to ‘vote’ on this IVA proposal – and it’s important to note that the proposal doesn’t have to be accepted by all of them.

Your IVA will be able to go ahead if it’s approved by lenders who account for at least 75% of your unsecured debt. So, if you owe £20,000, you’d need to have your proposal approved by creditors who collectively ‘own’ £15,000 or more of your debt. (Note that they may wish to request some changes to your proposal first – you and your IP will have to make yourselves available over the phone so you can discuss them.)

If it is approved by enough of your lenders, your IVA will be able to start. It will become legally binding on all your lenders – not just the ones who approved it, but also any lenders who rejected it, or who didn’t vote at all.

Your IVA will begin and you’ll begin making your monthly payments to your IP, who will subsequently distribute money among your lenders as agreed.

Since it’s a legally binding agreement, your lenders won’t be able to change their minds or try to take any legal action against you to try to recover their money – including trying to make you bankrupt – as long as you stick to your side of the agreement. If you do, your outstanding unsecured debt will be written off once the IVA has come to a successful conclusion (in most cases, this would be after 5 years).

Like any debt solution, an IVA has its ‘pros and cons’. Most people would consider the following to be the most important ones:

Pros

Your outstanding unsecured debt will be written off when your IVA comes to a successful conclusion.Your payments to your IVA will be set at a level you can afford after you’ve taken your essential expenses into account – so you’ll know they won’t take up money you need for things like your mortgage/rent, utility bills and food.It’s extremely unlikely you’d lose your home in an IVA (although you may have to release equity from it). In fact, it can help you keep your home, since your IVA payments would be calculated to make sure you could afford your mortgage.

Cons

An IVA lasts 5 years. Bankruptcy could be over in just 1 year (although you’d probably have to make payments for up to 3 years).You may have to release equity from your home so you can pay more into the IVA.An IVA will stay on your credit report for 6 years from the time it starts.

The article was written by ThinkMoney.com. If you are considering entering into an IVA or other debt solutions visit the site today.

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