As a formal alternative to Bankruptcy, an individual may look to put forward an IVA to his or her creditors. An IVA is set up and supervised by a Licenced Insolvency Practitioner.

An IVA is a flexible procedure where an individual (or partnership) can put forward a Proposal to repay a set amount of money over a specified period of time. For the Proposal to be approved, you will need 75% or more in value of those creditors who vote at the meeting to approve the Proposal. Once the Proposal is approved, all other creditors are bound by its terms. An IVA can help individuals retain their home, continue to trade and continue to act as a Company Director.

Take a typical example of Mr X who has built up £60,000 over 5 separate credit card providers. Mr X takes home £2,000 per month from his employment, but he is unable to maintain the monthly interest payments on the credit cards let alone pay off the capital. The debt continues to grow each month.

Mr X has heard about an IVA and goes to see a Licenced Insolvency Practitioner (IP) to see if he is eligible. After working through a monthly Income & Expenditure with the IP, it transpires that Mr X has £400 net surplus income per month if he omits his credit card payments from his expenditure. Mr X instructs the IP to put forward a Proposal to his creditors to repay a sum of £400 per month for a period of 5 years. The Proposal is accepted by 80% of Mr X’s creditors. This means that all other creditors are also bound by the terms of this Arrangement.

Mr X repays the £400 per month for 5 years paying a total of £24,000. Creditors receive a dividend against their claim and Mr X is now debt free at the end of the Arrangement. If you would like to discuss how an IVA may be beneficial to you, please contact one of the Business Recovery & Insolvency team on 01392 255888.