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As they become a popular alternative to bankruptcy, many people are asking: What is an IVA? Individual Voluntary Arrangements (IVAs) were introduced as part of the 1986 Insolvency Act as an alternative to bankruptcy. It has since become a popular method of debt relief where anyone can get out of debt without losing their home.
An IVA is a formal arrangement where the debtor agrees to repay the creditor a percentage of the money owed. Supervised by an Insolvency Practitioner, the debtor makes monthlty payments at an affordable rate for a period of 5 years. (Unless a part lump sum can be paid).
IVAs can offer debt reduction by as much as 70%.
In 2008, the Government u-turned on plans to simplify the IVA process.
Simplified IVAs, or SIVAs as they were to be known, were aimed at tackling some of the issues that make it hard for people to use IVAs as a way of reducing debt.
Insolvency practitionars had been critical of “unreasonable creditors” who failed to consider circumstances or an IVA applicant’s ability to pay when negotiating a repayment plan. Under an IVA, 75% of creditors must approve the debtor’s repayment plan, however a SIVA would have cut that percentage to just 51%.
Insolvency Practitioners had insisted that creditors representing only 25% of the debt were often objecting to an IVA proposal, meaning the debtor could not reach an agreement with creditors as a whole.
David Kerr, chief executive of the Insolvency Practitioners Association (IPA), said his members were very disappointed at the Government’s latest decision. He said: “The SIVA scheme would have made it more difficult for creditors to defeat reasonable proposals for repayment by setting arbitrary minimum levels of return which take no account of debtors’ circumstances and ability to pay.
“Certain crditors are still insisting on receiving more than debtors can afford to pay in some cases, resulting in proposals being rejected even where the creditor represents only 25% of the debts. That can be in nobody’s interest.”
The Insolvency Service, a Government body, said its decision to retain the status quo as far as IVAs are concerned was due to the concern amongst many creditor groups. The Insolvency Service claimed creditors believed the SIVA proposals signalled even more bargaining restrictions which would ultimately prevent their voice being heard around the negotiating table. Additionally, during their revue of the IVA system, the Government believed IVAs were streamlined to such an extend that further modifications were unnecessary.
Insolvency Practitioners criticised the u-turn as a “missed opportunity” and said more has to be done to cater for the surge in IVA applications. Mr Kerr said: “There is a big demand for additional expertise in this area. Back in 2004 the number of IVAs taken out each year was about 10,000. Now the figure is running at about 40,000.”
The British Banker’s Association issued a statement expressing their satisfaction that SIVAs have been indefinitely postponed. “Banks are pleased with the decision not to proceed with simplified IVAs as we had concerns about the effectiveness of the proposals.”
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