Set up an IVA – The Process

Set up an IVA, image of a lady in debt

What Set up an IVA – The Process

This article deals with the process how to set up an IVA.

An Individual Voluntary Arrangement (IVA) is a legal debt solution that seeks to protect the interests of both you (the debtor) and your creditors. it also helps you to write off unsecured debts. There is a defined procedure that every IVA application must follow.

Finding the right debt solution

You may believe that an IVA is the best debt solution for you. It is still advised that you obtain free debt advice from a professional. Debt solutions have their own criteria. You can check to see whether you qualify yourself.  Be aware, some solutions might be better suited than others for your situation. Consult with a debt advisor about your income and expenditure before making any decisions. They can assist you in establishing a debt solution.

The first step to set up an IVA, is to locate an Insolvency Professional (IP). Because an IVA is a legally binding option, you’ll need the assistance of a qualified professional. Become Debt Free has an in-house Insolvency Practitioner and a committed team that will walk you through the process.

The role of the Insolvency Practitioner (IP)

An Insolvency Practitioner is a qualified professional who has been authorised by a regulated professional body to advise on and supervise formal debt solutions.

Individual Voluntary Arrangements are just one option for you to explore. Insolvency Practitioners will look at your finances and determine if an IVA is likely to be accepted. They’ll examine your income and expenditure, and work out how much money you can afford to give your creditors. Your IP will then present your proposal and explain what an IVA would entail for your property and assets. If you have any queries or concerns, your IP will be happy to answer them for you.

The IVA Proposal Creating a budget

After your living costs have been deducted from your monthly income, the remaining budget will be used to calculate your proposal. The budget takes into account essential household items like bills, rent and food. It also includes necessary expenses such as clothing, toiletries

An IVA is intended to assist you in reducing your debt so that you do not have to live in poverty while paying off your obligations. Each year, your income and expenses will be reviewed to confirm that you are still paying the correct amount – if you can afford to increase your payments, they will be asked to do so.

Preparing for your proposal

As part of the process to set up an IVA, it’s a good idea to collect all of the information your IP will require before you contact them. Having this at hand will save time when creating your proposal.

Typically, they’ll need the following types of information/paperwork:

  • Payslips or bank statements for the last 3 months (to verify your income and expenditure)
  • Your latest mortgage statement (and statements for any other secured loans, if applicable)
  • Evidence of rent payment amounts (if you’re a tenant) – either a copy of your rental/tenancy agreement or your bank statement
  • Details of any other financial policies such as life insurance, health insurance and pension contributions – copies of relevant documentation showing payment amount(s)
  • Details of any vehicle finance (if applicable) – a copy of the relevant HP/finance agreement(s) or the latest statement you’ve received from the lender
  • All recent creditor correspondence (so we can note the account numbers, addresses and latest outstanding balances)

What you will need to do:

The qualified professional will do most of the work in proposing your IVA since your IP is the certified expert. You must be honest with your IP, and communicate with them if they need information from you. When your IVA is approved, you will no longer have to deal with your unsecured creditors; instead, you will pay the agreed payments directly to your IP who will administer and distribute the money as needed.

The IVA proposal is designed to explain your financial position and suggest how much you can afford to repay each month on your obligations. It’s critical that you tell the truth and be completely open at this stage; if you falsify or exaggerate information, it could severely complicate your application and efforts to become debt-free.

Once your insolvency practitioner has collected all the information, he will draw up a proposal for you and, if you agree with it, submit it to your creditors for their approval.

The Creditor’s Meeting

After your IP has submitted your proposal, you have to wait for your creditors to reach an agreement. In order for it to be accepted, at least 75% of the total balance of debt must vote in favour. As a result, the creditors you owe the most money will have the most influence over the success of your IVA.

Choosing to proceed with Become Debt Free, you may rest confident in the knowledge that around 85% of their proposals are accepted. This is because of the amount of IVAs they deal with daily. They have a good understanding of which applications are likely to be approved.

What do creditors consider?

When it comes to the actual vote, keep in mind that creditors have their own goals when evaluating your application. They will evaluate the amount being offered as a repayment, how much you owe, the value of your assets, and how much they anticipate getting from the IVA.

Creditors will also look at how serious you are about repaying your debts and may insist that you cut back on things such as trips to ensure that you can keep up with the payments.

Your IP will tell you whether your IVA is likely to be accepted by your creditors. However, as a condition of your agreement, you will not have to give up everything. Creditors simply want to make sure that you are doing all possible to pay down your debts.

How your payments are calculated

Typically, your payments are calculated by taking your overall monthly net income minus all essential living expenses.

When your creditors vote on your IVA, they can ask for your monthly payments to be increased. This is if they think your expenditure is excessive. You can choose to accept this, negotiate with the creditor, or reject the increase. If you do reject the increase in payments, your IVA will not be approved. You will need to explore alternative debt solutions.

Your income and expenditure will be reviewed annually during your IVA to see if you can afford to increase your payments into your IVA. Typically, you will be asked to increase your payments by an amount equivalent to 50% of any increase in your monthly surplus income.

What if you can’t afford your monthly payments into your IVA due to a change in your financial or other circumstances. It is possible to ask creditors to accept a revised proposal to reduce your monthly payments. Should your creditors accept this, then your IVA will continue on the revised terms.

Keep up with your agreed monthly payments, or your IVA could fail. This means your creditors would be free to chase you again for the outstanding debts.

It is also worth noting that an IVA does affect your credit rating.  It is best to receive the relevant advice on your options.

To apply for an IVA or for free advice in general, then feel free to get in touch with our expert advisers at Become Debt Free.  Call us on 0800 169 1536 for free or request a callback. You can learn more on our website Become Debt Free

Not ready to set up an IVA? Read this article 7 Effective Tips to Help You Tackle Your Debt





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