How are IVA repayments calculated?

Individual Voluntary Arrangements (IVAs) have become a very popular alternative to those with unsecured debt potentially facing bankruptcy. In May 2010, the IVA protocol was updated to simplify the process. As a result of this simplification, it has become easier for an Insolvency Practitioner to draw up a proposal to present to Creditors, and therefore lower their fees. This in turn means that Creditors may be more agreeable to the terms of the proposed IVA.

Financial Review

During the Proposal process, the Insolvency Practitioner will need to gather information from the applicant, or debtor, in order to be able to calculate a reasonable and affordable monthly repayment schedule to present back to the creditors. This means that the amount payable will vary from individual to individual, however the criteria will remain the same for everyone.

There are 4 financial areas that an Insolvency Practitioner will ask about during the process, and each will require proof. These are as follows:

• Assets: The Insolvency Practitioner must be advised of any assets the applicant may have. Any material assets will need to be independently valued and proof must be provided. In some situations, the applicant may be expected to sell some of their assets and any funds raised may be put towards the IVA.
• Liabilities: This refers to all known and potential creditors. Evidence to be supplied may include statements, letters or agreements from the creditors. Any evidence provided should be dated within 6 weeks of first contacting their Insolvency Practitioner.
• Income: Proof of income is vital in order to calculate affordable payments. Payslips, or equivalent in the case of the self employed, will be accepted as proof. Where payslips are unavailable, bank statements may suffice. If the debtor is in receipt of any rental payments (eg from a lodger) then this will also need to be declared and included in the monthly income. Information on any benefits received will also be required.
• Expenditure: This is also very important to disclose. All reasonable expenses will be taken into consideration, for example; the cost of living; mortgage or rent; utility bills and council tax; pension payments; vehicle finance or hire purchase agreements; secured bank loans and so on. Any expenses that are out of the norm, for example health insurance or Payment Protection Insurance, should be declared along with a note explaining why it is an essential expense. There may be some restrictions with certain expenses, for example Pensions, which an Insolvency Practitioner will discuss with the applicant.

Home Owners

Where an applicant owns, or partially owns their home, then any equity in the property will need to be taken into consideration. Depending on the circumstances, equity may need to be released from the property in order to go towards the IVA. This will normally be 6 months before the conclusion of the IVA and will be limited to a maximum of 85% of loan to value (LTV) with the incremental cost of the remortgage being no more than 50% of the monthly contribution to the IVA. For further information regarding this matter, please see ‘IVAs and mortgages’.

Once all the information has been gathered by the Insolvency Practitioner, they will calculate a reasonable monthly amount to be repaid to the applicants Creditors. It will then be presented at the Creditors meeting when they will vote on whether to accept or refuse the IVA proposal.