Summary: This article reviews the role of the debt management company in an IVA and how they may charge the individual.
Individual Voluntary Arrangements (IVAs) are becoming more and more popular as an alternative to bankruptcy as there are generally fewer restrictions placed on the individual. In order to enter such an agreement, the debtor has to 'recruit' the services of an Insolvency Practitioner (IP) or a licensed practitioner to liaise with all of the creditors and manage the ongoing arrangement. These individuals usually work for, or on behalf of debt management companies, of which there are many available to choose from.
What do debt management companies do?
A debt management company will be able to advise an individual if an IVA is indeed a suitable option. They will then assist them in gathering all financial information, including debt owed, assets owned and monthly outgoings. They will then present this information to the creditors involved and negotiate with them to come to an agreement. Once agreed, the company will supervise the case pan ongoing basis and be a point of contact for the individual as well as be a liaison to the creditors.
What do debt management companies charge?
It is unusual for a debt management company to offer their services for free, but many will offer an initial consultation at no charge. Should the individual wish to proceed with the chosen company, any charges that are applied will usually be built into the monthly repayments of the IVA, and therefore they will be affordable. Assuming the creditors agree to the terms of the IVA, any outstanding debt left at the end of the term of the IVA (usually 5 years) is cleared anyway, so it could be argued that the fees are actually covered by the creditors. It is important to note that reputable debt management companies and individuals are specialists in their field, and so they are more likely to negotiate agreeable terms.
Can I use one of the free advice services to set up an IVA?
There are a number of charitable organisations, such as the Citizens Advice Bureau (CAB), Step Change (formally known as the Consumer Credit Counselling Service, or CCCS) and National Debtline, all of which are able to offer valuable advice to individuals looking into possible debt solutions. However, it should be noted that due to their very nature, case loads are high and there could be long waiting times. Furthermore, it is usual for the charitable services to hand over the case to an Insolvency Practitioner anyway, at which point, there may well be a fee incorporated into the IVA.