Summary: This article explains the role of the creditor in the IVA process, and what criteria they look for in order to accept an IVA proposal.
An Individual Voluntary Agreement (IVA) is a popular alternative to bankruptcy as it usually protects an individual from having to sell their home. The debtor will repay affordable monthly amounts based on what they can reasonably afford, and the term is usually for 5 years, after which time, any outstanding debt is cleared.
Why would a creditor accept an IVA over bankruptcy?
A far as creditors are concerned, they want as much of a return on outstanding debt as possible. If an IVA proposal can demonstrate that they will get more money back than any alternative, such as bankruptcy, they are more likely to accept.
Who deals with the creditors throughout the process?
Usually, an individual will 'recruit' the services of an Insolvency Practitioner (IP) to assist them through the application process and ongoing IVA. It is the role of the IP to gather all the necessary information from the debtor and put forward the proposal to the creditors. They will liaise with creditors at what are referred to as creditors meetings. These are often online meetings.
Do all of the creditors have to agree to the IVA in order for it to be approved?
As a general rule, an individual can usually only enter an IVA if they have at least 3 lines of credit owed to at least 2 creditors. For example, a bank loan, a credit card and an overdraft would be considered 3 lines of credit, but they cannot all be held with the same lender. In order for the IVA to be approved, the creditors of at least 75% of the total value of debt must agree. For example, the debt includes an unsecured loan of £15,000, a credit card (with a different lender) for £3,000, and tax debt of £1,000. In this case, if the lender of the £15,000 unsecured loan agrees to the IVA, it would go ahead as this single loan is more than 75% of the total debt. On the other hand, if that lender disagreed with the IVA, it would not go ahead.
Can creditors vote together to reject an IVA?
It is possible for creditors of lower value loans to join together in what is referred to as 'block voting'. It is also possible for a third party to work on behalf of multiple creditors at the creditors meeting to action such a vote.
How can I increase the likelihood of my IVA being accepted?
As mentioned above, creditors will want to see a greater return on their debt than if the individual is declared bankrupt. By putting forward a detailed proposal detailing how much the creditors will get will certainly put the application in a more favourable light. It is also important to be honest about any assets and savings, as they may need to be used to repay some of the debt. Furthermore, if there is equity in a property, the applicant should be prepared to release some of the equity to also repay some of the debt.