In the simplest terms, an Individual Voluntary Arrangement is a contract between the debtor and their creditors. The debtor puts forward a proposal to his / her creditors, which outlines their current financial position and some of the history behind it. They make their creditors the best offer they can afford, either from current income or from a third party contribution in settlement of all their unsecured liabilities.

Contributions are normally paid monthly and typically last for between 3 to 5 years, however a one-off lump sum payment can also be made without the need to make the monthly payments.

In the event that the debtor is unable to offer his / her creditors repayment in full then creditors may well accept a lower amount on the basis that this is more than they are likely to receive in his / her bankruptcy.

If the requisite majority to approve the debtor’s proposal is achieved, (75% in value of creditors who participate in the voting), then the arrangement is legally binding on both the debtor and the creditors.

Once the debtor has completed his / her part of the contract and providing the terms of the IVA are compiled with then the creditors have no recourse over that debt and the debt is deemed to have been legally discharged.

Advantages

• No publicity (no public notices or advertisements)
• Avoids the stigma of bankruptcy
• Creditors usually receive a greater dividend than what they would expect in a bankruptcy
• More flexible than a bankruptcy in that you have more control over your assets and payments to creditors. The length of term of the arrangement can also be varied
• Permits an individual to hold certain offices such as director of a limited company

Disadvantages

• Failure to comply with the terms of the IVA may result in eventual bankruptcy
• There is no guarantee as to how the creditors will vote
• Creditors may wish to vary or modify the proposal
• In some circumstances the initial costs for the Nominee’s fees need to be paid in advance
• Further credit is usually prohibited within the term the arrangement

Below we have compiled a list of the most frequently asked questions together with the answers.

How much is X amount?

In order to determine how much you can afford to pay per month you will need to calculate how much you currently spend on day-to-day living expenses. See our free budget form as we help you work this out. Then, you deduct this amount from your net income per month and you have the figure you could afford to pay per month into the Voluntary Arrangement. Alternatively creditors may well accept a one-off lump sum payment, such as a re mortgage, in full and final settlement.

How do my creditors say yes or no to my proposal?

A creditors' meeting is held at which you may be asked to attend and your creditors will have been sent forms for voting on whether to accept or reject the proposals put forward. Your creditors may submit their votes by post or in person on the day of the meeting. Creditors do not usually attend the meeting.

Where does the creditors’ meeting take place?

It is normally held at the office of the appointed firm that prepared the proposal for you. In some instances the meeting may well be held at a place convenient to the majority of your creditors. In the majority of cases you do NOT have to attend as creditors usually vote by post and facsimile.

Can creditors change their mind at a later date and demand more?