Individual Voluntary Agreement: a Smart Deal for Curbing the Mounting Debts

An Individual voluntary arrangement, or IVA, allows a borrower to avoid extreme situations like bankruptcy by coming to an agreement with lenders to pay off a percentage of his or her debts over a given period. There are no hard and fast rules for such agreement. Essentially, an IVA is a legal binding process between the individual, his or her insolvency practitioner and multiple lenders. Generally the borrower will pay a lump sum upfront to the lenders and the insolvency practitioner, followed by a series of monthly payments to the agreement come into force. Sometimes a meeting of lenders is held, in which case it is important for all lenders to be informed.

The repayments after the agreement is formalised are calculated through an analysis of the person’s income and expenditure. Once agreed mutually, the repayment program forms part of a legally binding contract. The individual taking out the debt management plan under IVA can apply to the court for an interim order to prevent lenders from proceeding with a bankruptcy petition while the agreement is in force. However, the lenders can still force the concerned person into bankruptcy if he or she does not meet the requirements of his or her side of the agreement. There is one other catch but an IVA can go ahead only if lenders representing more than 75 per cent of the debt agree to the agreement.

But for the debt ridden person, an IVA offers many attractions. Perhaps most important is that it means that the person avoids the stigma and the severe penalties of extreme situations like bankruptcy. For people whose careers could be put at risk if bankruptcy is filed , such as lawyers and financial practitioners, people at Army, an IVA is particularly attractive. The arrangement gives the debtor more right in how assets are dealt with and avoids some of the fees and expenses payable in case of bankruptcy.

The UK Government has its own interest in encouraging this agreement. These agreement are dealt with by commercial insolvency practitioners rather than the office of the Official Receiver at the DTI, so the greater is the number of agreements , the less pressure on the Government’s resources.

While there are about 9,000 bankruptcies each quarter, only a tiny fraction of that figure enter into such agreements. The reasons are many. Some individuals go straight to the County court and file for bankruptcy without seeking the service of a professional insolvency practitioner to get rid of the debt, so they never hear about the financial alternatives. Another problem has been the number of rogue practitioners who take a handsome fee to set up agreements that are totally unrealistic. They have tarnished the reputation of the this agreement. Cost is also a deterrent in the growth of IVAs. ,The fees taken for this agreement often looking hefty compared with the debt owed. And, of course, the agreements are an option only for who have sufficient assets or a steady income stream that will allow them to make an offer to lenders.