There are many reasons why you may find yourself in financial trouble. In situations, which in the past might have resulted in bankruptcy, you may now have the option of opting for what’s called an IVA or Individual Voluntary Arrangement.

The nature of debt

You may find yourself in the position of having debts that you simply cannot service – for whatever reason.

That may be a deeply depressing and stressful position.

Although there may be some situations where it is inevitable, many people would prefer to avoid going to full bankruptcy proceedings and that includes creditors, debtors, the government and courts.

That is why they collectively set up to the IVA as a way of managing the position to a satisfactory resolution for all parties concerned.

How it works

Typically, you will need to owe something in excess of approximately £15,000 and to more than one person/company.

You will then contact an insolvency practitioner who will form a panel of your creditors in order to review your overall position. They will look at things such as your income, your total debts including regular monthly outgoings to support your life, your assets and critically, how much spare income you have each month to service your debts.

That panel will then decide between themselves, how much of the debt you owe to each of them they will realistically accept that you’ll be able to pay off. As an approximate guideline, they may accept the reality that you may only be able to repay perhaps 25% of what you owe them.

Individual lenders may be reluctant to accept this form of agreement unless they will get back at least 20-25% of the original debt.

Once the percentages have been discussed and assuming a majority (75% by value of the debts outstanding) agree, a legal IVA will be put into place.

If they cannot agree as a majority or the maximum amount they will accept is more than you can realistically afford to pay, there may be no alternative but to move to full bankruptcy.

If it is agreed, the insolvency practitioners will usually set up your agreed repayment and monitor your adherence to the agreement.

If your debts and assets are shared with a partner, you may be able to take out a joint IVA.

What it means

Once the agreement is in place, you will not be able to take out any more unsecured loans until it is complete.

Your credit history files will be updated to reflect the position and you may find it difficult or more expensive, to secure any form of loan until the agreement is concluded.

However, depending on your circumstances, using an IVA may allow you to continue a relatively normal life and avoid the repossession of your home.