With spiraling levels of personal debt in the UK, it isn’t surprising that the Individual Voluntary Arrangement, also known as the IVA, has grown in popularity as a debt solution. It provides the most viable alternative to personal bankruptcy for dealing with serious debts.
What is an Individual Voluntary Arrangement?
Provided that 75% of creditors, in terms of value, agree to the Individual Voluntary Arrangement, it becomes a legally binding agreement. Unlike a debt management plan, an IVA is a way to write off debt and become completely debt free once 60 monthly payments are made. It also prevents creditor harassment.
The Individual Voluntary Arrangement and Home Owners
A home owner that declared personal bankruptcy would almost certainly lose their family home. An Individual Voluntary Arrangement allows someone with serious debts to keep their property, provided that payments are maintained for the entire duration.
Should an insolvent fail to meet the terms of the Individual Voluntary Arrangement, the Insolvency Practitioner would use the proceeds paid into the IVA to declare them bankrupt. Those who keep up with payments will be expected to get a remortgage for 80% of all available equity at the end of year 4. However, this will be based on affordability.
Personal Bankruptcy and Involvement in Speculative Activity
Insolvents who have lost money from personal loans or accrued credit card debt through an involvement in speculative activity should think carefully before declaring personal bankruptcy. Those involved in gambling or share trading can be held accountable for up to 15 years under a Bankruptcy Restriction Order (BRO).
Finances aren’t nearly as heavily scrutinised with an Individual Voluntary Arrangement as is the case with personal bankruptcy. Whilst a 5 year IVA term may seem like a long time, personal bankruptcy could prove far more punitive in certain circumstances.
The Individual Voluntary Arrangement and Protecting a Professional Status
Those working as a professional, such as an accountant, financial advisor or solicitor, would lose their status immediately if they declared personal bankruptcy. It is argued that an Individual Voluntary Arrangement allows someone to maintain their professional status.
Personal Bankruptcy and Publicity
Whilst personal bankruptcy results in the news being printed in a local newspaper and the London Gazette, this isn’t the case with an Individual Voluntary Arrangement. However, the IVA is put on a publicly available insolvency register.
An Individual Voluntary Arrangement can be an excellent debt solution for a homeowner. Although the term is longer and more has to be paid into this debt solution, an IVA allows someone to live a normal life and provides a defined term when that person will become debt free.