The IVA Process
An IVA is a legally binding debt solution that looks to protect the interests of both you (the debtor) and your creditors. Due to the nature of an IVA, there is a defined procedure that every IVA application must follow.
Finding the right debt solution
Although you might think an IVA might be the right debt solution for you, it is still recommended that you seek free debt advice from a professional. Debt solutions have their own criteria and while you can check for yourself whether you qualify, certain solutions might be better suited than others for your circumstances. Consult with a debt adviser first about your income and expenditure and see what recommendations they make – they can also help you in the process of setting up a debt solution.
If an IVA is the right solution for you, the first step is to find an Insolvency Practitioner (IP). As an IVA is a legally binding solution you will need a qualified professional to support you through the process. PayPlan refer their clients to their associated companies, PayPlan Partnership Limited or PayPlan Bespoke Solutions Limited – a fully licensed team of IPs who have many years’ experience helping clients successfully get out of debt.
The role of the Insolvency Practitioner (IP)
An IP is a qualified professional, authorised by a regulated professional body, to advise on and oversee formal debt solutions.
Your IP will look at your finances and work out whether an IVA is likely to be approved. They will go through your income and expenditure and work out how much you can reasonably afford to offer your creditors. Your IP will then make a suggestion for your proposal and discuss what an IVA will mean for your home and assets. If you have any questions or concerns your IP will be available to provide you with the information you need.
The IVA Proposal
Creating a budget
Your proposal will be based on your monthly income and your necessary living expenses. Your budget will be decided based on what money you have left after your living costs have been deducted. Your budget doesn’t just take into account household bills, rent and food – it will also consider clothing, toiletries, travel, school expenses and childcare to name just some examples. An IVA is designed to help you get out of debt so while you will have to make cutbacks on luxuries you won’t have to struggle financially – you can still live comfortably while repaying your debts.
Each year your income and expenditure will be reviewed to ensure you are still paying the correct amount – if you can afford to increase your payments you will be asked to do so.
Preparing for your proposal
Before you talk to your IP, it is useful to gather the information they will need for your proposal. Having this on hand will save time when putting together your proposal.
Typical types of information/paperwork that they’ll need:
- Payslips or bank statements for the last 3 months (to verify your income and expenditure)
- Your latest mortgage statement (and statements for any other secured loans, if applicable)
- All recent creditor correspondence (so we can note the account numbers, addresses and latest outstanding balances)
- Evidence of rent payment amounts (if you’re a tenant) – either a copy of your rental/tenancy agreement or your bank statement
- Details of any vehicle finance (if applicable) – a copy of the relevant HP/finance agreement(s) or the latest statement you’ve received from the lender
- Details of any other financial policies such as life insurance, health insurance and pension contributions – copies of relevant documentation showing payment amount(s)
What you will need to do:
Your IP is the qualified professional so they will do most of the work in proposing your IVA. You will need to be honest with your IP however and communicate with them when they need your information. If your IVA is agreed then you will no longer have to talk to your unsecured creditors, you will pay the agreed payments to your IP who will then look after your IVA and distribute the funds as appropriate.
The IVA proposal aims to outline your financial situation and suggest how much you can afford to repay on your debts each month. It’s very important that you are completely honest and open at this point, falsifying or exaggerating information could significantly hinder your application and your path to being debt free.
Once your IP has all the information he will draw up the proposal and if you agree, submit it to your creditors for their approval.
The Creditor’s Meeting
Once your IP has submitted your proposal, it is then a case of waiting for your creditors to come to an agreement. At least 75% in value of the creditors who vote on your IVA must vote in favour in order for it to be approved. Therefore, the creditors you owe the most money to will have the biggest say.
If you decide to work with PayPlan, you should feel confident knowing that around 85% of their proposals are approved and due to the amount of IVAs they deal with, they have a good idea of which applications are likely to be accepted.
What do creditors consider?
When it comes to the vote itself, remember that creditors have their own agendas when judging your application. They will review the amount being offered as a repayment, how much you owe, the value of your assets, how much they expect to receive from the IVA and the reasons for your debt.
Creditors will also consider how committed you are to repaying your debts and may expect you to give up luxuries such as beauty treatments and holidays to ensure you can manage the monthly repayment.
Your IP will advise you on whether it’s likely that your IVA will be accepted by your creditors. However, you won’t have to give up everything as part of your agreement. Creditors simply want to ensure you are doing what you can to repay your debts.
How your payments are calculated
Your monthly payments are usually based on your basic monthly net income minus all your essential living costs – such as mortgage/rent, utility bills, telephone costs, travel costs and housekeeping.
When your creditors vote on your IVA, they can ask for your monthly payments to be increased if they think your expenditure is excessive. You then have the choice to accept this increase, negotiate with the creditor, or reject the increase. If you do reject the increase in payments, your IVA will not be approved, and you will need to explore alternative debt solutions.
Your income and expenditure will be reviewed annually during your IVA to see if you can afford to increase your payments into your IVA. Typically, you will be asked to increase your payments by an amount equivalent to 50% of any increase in your monthly surplus income.
If you can’t afford your monthly payments into your IVA due to a change in your financial or other circumstances, then it is possible to ask creditors to accept a revised proposal to reduce your monthly payments. If your creditors accept this, then your IVA will continue on the revised terms.
If you don’t keep up with your agreed monthly payments, your IVA could fail, meaning your creditors would be free to chase you again for the outstanding debts.
If you need further advice on the IVA process, then feel free to get in touch with our expert advisers – give them a call on 0800 280 2816 for free or request a callback.
*In the case of a one-off lump sum settlement