IVAs and the Self Employed

Individual Voluntary Agreements (IVAs) are a popular alternative to Bankruptcy, ideally suited to individuals in full time employment, although all circumstances are taken into consideration. An IVA allows an individual who is struggling to repay their debt, to pay affordable monthly amounts, usually for a period of 5 years or so, with any outstanding debt being cleared at the end of the term.

Eligibility

A question that is often asked is can I enter an IVA if I am self employed? Furthermore, can I continue to trade whilst in an IVA? It is true that setting up an IVA involves far more complexities than an individual who is employed, there is no reason why the self employed cannot also benefit. In fact, the IVAs were originally conceived to assist self employed individuals whose businesses were struggling financially and faced closure, but providing the individual has a minimum of £12,000 of unsecured debt, to at least 2 or more creditors, and is insolvent (i.e. after essential expenditure, remaining income does not cover the monthly debt repayments), then they could be eligible to apply for an IVA.

Security of Business Assets

Where an individual who is self employed may have accrued business debt from lost contracts, clients who have not paid, a drop in the economy and so forth, they may also have personal debts from loans and credit cards taken out in an attempt to prop up the business. An IVA will take all of these debts into consideration and allow the individual to repay an affordable monthly amount, usually over a period of 5 years, after which time any outstanding debt will be cleared. Any business assets can be retained by the trader allowing the business to continue trading. If the individual owns their own property and there is some equity (but not enough to repay all debts), then a portion of this may be required to be released towards the end of the term in order to repay some of the debt owed.

Full and final settlement

It is also possible that if the individual has a reasonable lump sum available, then they could go for a full and final settlement. This will usually be a lump sum payment to the creditors that may not necessarily cover the entire cost of the debt, but if the amount the creditors get is more than if the individual were to declare themselves bankrupt, then they are generally more likely to agree to the settlement.

Advantages

The main advantage of an IVA for the self employed, quite apart from the fact that after a fixed period they will be debt free, and that in many cases business assets are protected allowing them to continue trading, is that the IVA prevents the creditors from chasing the debtor. Nor can they petition for bankruptcy. Furthermore, any interest will be frozen on the existing debts.

Considerations

While an IVA may seem the ideal solution to protect an individual’s business while continuing to be able to trade, it is important to remember that the IVA will be entered into the individuals credit record, and will remain there for 6 years. This could affect gaining future credit. Furthermore, details will be entered into the Insolvency Register for the duration of the IVA, which is a publicly accessible record. For anyone considering an IVA as an option, it is vital to seek advice from a reputable, licensed Insolvency Practitioner, who will be able to discuss all the options available.