What do directors need to understand
Before the insolvency practitioners begin dealing with, and distributing payments to your creditors, they must all agree on the IVA procedure. As such, you must seek urgent insolvency advice when facing financial issues to avoid bankruptcy and retain some control of your assets.
However, once 75% of creditors have agreed to the individual voluntary arrangement, it becomes official. Most importantly, your creditors cannot seek any further action in regards to payment, nor harass you for any additional sums.
All communication with your creditors will go through the licensed insolvency practitioners. If you do receive harassment for repayment from one or more creditors, you must alert your IP immediately to resolve the issue quickly and efficiently.
Managing and distributing payments
An IVA offers you a more flexible approach to repayments as opposed to a bankruptcy order. However, an IVA will last longer than bankruptcy, generally between 5 and 7 years.
Licensed insolvency practitioners will sit down with you and propose a realistic IVA debt management plan that will take into account your monthly expenditure, and the realistic repayments you can make. Each month, you will then make those payments and the IP will distribute to your creditors. If the amount is not possible and would leave you in a worse financial situation, you must speak to your IP and ask them to reduce the amount before they submit the proposal.
Insolvency practitioners will generally take their fees from the monthly repayments, and payment of the nominee’s fee is generally only required in higher risk cases. Otherwise you will not need to make additional payments to cover the insolvency practitioners fees and the amount to be paid will be agreed with creditors.
Annual reviews are important for ensuring your IVA debt management plan is still realistic and you can afford those repayments. The licensed insolvency practitioner will conduct a review of your situation annually, and will make sure it is moving forward correctly.
These IVA reviews will take into account your wages, any changes in your financial situation, expenditure and more.
You will likely be required to share financial documents, such as payslips. This is in part to ensure there are no major changes to your financial situation that your IP should be aware of. However, if there are any substantial changes and you have failed to alert the IP, they could – in the very worst case – even forcibly terminate your individual voluntary arrangement.
As such, you should be completely transparent and open when seeking insolvency advice and dealing with your IP.
What if my situation changes?
As mentioned above, you must always alert the IP to any changes to your finances, so they can adjust your IVA debt management plan.
If your income increases, for example, you may be required to change your IVA payments and increase the repayments. Many IVAs also come with a ‘windfall clause’. Should you come into an inheritance, bonus at work or even win a large sum of money, you will, likely, be expected to put some or all of it towards your IVA.
If, for any reason your income decreases and you can no longer make those repayments, you may be able to change those repayments accordingly. It may be necessary for a variation to be put forward to agree these changes with creditors.
IVA cancellation process
If you do choose to cancel your IVA, the insolvency practitioner will be responsible for doing so. However, you should carefully consider your decision and speak with your IP, discussing all possible insolvency advice, so you are clear on the repercussions of cancelling the insolvency procedure.
You can only cancel the IVA if your IP and creditors agree, for reasons such as:
- Your circumstances have changed and you are unlikely to pay any more money, for instance, if you have been diagnosed with a long-term illness;
- You can demonstrate to the creditors and your licensed insolvency practitioner that you can make better repayments without the IVA.
If they all agree, your IP will fail the IVA. Essentially, this means the procedure has not worked and will stop. You will then receive a notice of termination, but you will still have to make arrangements with your creditors to repay any leftover debts.
If they don’t agree to the cancellation, you cannot simply stop making payments to your creditors. Doing so will breach the terms and conditions for the personal insolvency procedure, and the IP will take action for those missed payments.
More information on the IVA procedure as a whole is also available here.
If you are seeking insolvency advice for a IVA debt management plan, our business recuse experts will help to ensure you settle on the right solution and make affordable, monthly repayments.