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IVA Facts

What every Borrower should know about IVAs

You don’t have to know what an IVA is, in the event your personal finances are in good health. Nonetheless it’s a bit like having no interest in doctors, medications or hospitals because your health is currently good. Should you take preventive measures, you may very well enjoy a long and healthy life without any difficulties whatsoever. In the real world, few individuals are so fortunate in terms of personal health and wellbeing. The same thing is applicable to your monetary health. Perhaps you ought to take the trouble to determinewhat your options are if your personal finances should deteriorate suddenly and disastrously. Calamity could strike should you suffer a loss of your job or your personal relationships deteriorate to the stage of separation or divorce or you are unexpectedly facing the bereavement of a spouse, partner or family member.

One of the prime solutions for those who undergo financial troubles and find themselves to be insolvent is an IVA. In this article we clarify in layman’s terms what an IVA is and what are the key elements of the IVA course of action. Frequently asked questions and brief answers are also offered.

Let's presume that you've got debts and you can't afford to make the agreed repayments to your creditors and you would like to attain agreement with them to pay off what you can manage. If you've got a regular income and irrespective of whether or not you've got property such as a house, an IVA can help you to reach agreement with your creditors to pay back a part of your financial obligations and to have the remainder cancelled in a fair time period. An IVA is a formal and binding agreement to repay a percentage of your liabilities during a restricted duration, commonly five years, but it can be for a lesser period of time. It is binding on you and on your creditors. Following the term, provided you have adhered to the IVA agreement, your entire debts are wiped out. Here are some of the commonly asked questions.

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Must I include all of my debts in my IVA offer?

Except for secured liabilities for instance your mortgage or your vehicle HP, all unsecured debts have to be included in your offer for an IVA.

What are unsecured debts?

Funds borrowed via credit cards and store cards, personal loans, current accounts, arrears on utility bills such as telephone, gas or electricity, self assessment tax arrears, arrears on council tax, overdue water charges and borrowings from friends or family are all examples of unsecured debts.

Must every one of my lendersconsent to accept my IVA offer?

No. Each of your unsecured lenders have the right to vote to accept or to decline your IVA proposal. They could also elect to abstain from voting and in practice many creditors do abstain. Of those unsecured lenders who do vote however, at least 75%, as measured by the value of your financial obligations to them, need to accept your IVA offer for an IVA to come into being. The creditors who failed to vote are still bound by the decision taken by the lenders who did. All accepted IVAs are registered with the government. The main legislation relating to the creation and conduct of IVAs is governed by the Insolvency Act (1986) as well assome more recent legislation.

How much money will Ihave to pay into my IVA if my proposal is accepted by my lenders?

Only what you can afford. Your IVA proposalcarries an income and expenditure statement thatworks out your disposable income. Disposable income is the difference between your income (what you earn from your jobas well as any other unearned income you may have for example pensions and benefits) and your expenses (the living expenses of you and your dependents including your mortgage and vehicle HP repayments). You will be required to pay all of your disposable income into your IVA on a monthly basis. Lenders can challenge the computed amount of your disposable income if they feel your living expenses are too ample. Unless you can reasonably justify the living expenses you have statedyou may have to increase the monthly payments in line with modifications demanded by creditors at their initial meeting.

How long will I need to make such monthly payments?

The usual period for an IVA is five years or sixty months. However, it might be shorter than that if more funds should become available. For example, you could re-mortgage your house, with the prior agreement of your unsecured creditors, and in so doing free up an equity lump sum. By contributing some or all of this lump sum to your IVA, creditors may consent toreduce the duration of the IVA, enabling you to be debt-free in a reduced period of time. The IVA timeframe may also be to some extent longer than five years and in exceptional circumstances it could continue for six or even seven years.

How about my mortgage payments or my car HP installments?

You carry on and repay these directly to your secured creditorsand they'repermitted expense items which you'll have detailed on your income and expenditure statement.

How about the expenses I would have in an IVA?

The charges and expenses of your IVA are taken from the monthly payments you make into your IVA. You have to pay nothing at all yourself. Creditors will have to have agreed upon these costs at the original meeting of creditors when your IVA proposal was accepted.

Can I obtain a quote of these costs?

Not only a quote. The IVA proposal must incorporate a summary of the fees of the IVA and these will usually be set over the duration of the IVA. Thus, you will be aware right from the start what the charges of the IVA process are going to be throughout its entire term.

Where can I get advice on an IVA and how much will getting advice set me back?

There are many reputable companies that offer insolvency services on a commercial basis. As part of those services, they offertotally free preliminary advice to individuals who contact them. There are also some charitable organizations that offer free of charge advice such as the CCCS that is backed by lenders. Once an IVA is approved by creditors, it is supervised and administered by a licensed Insolvency Practitioner often referred to as an IP. This is a stipulation of the law. The IP charges no fees and obtains no income until the IVA is accepted by creditors. The IP’s charges then come out of the payments agreed with the lenders. If the lenders don'tconsent to the IVA offer, the IP obtains no fees whatsoever and the borrower has nothing to pay.

What alternative choices do I have if I encounter personal financial difficulties?

The main other options usually contemplated by citizens with personal financial difficulties are to get a Debt Relief Order (if the amount of debts is small and certain other conditions are fulfilled), get a consolidation loan (which normally lumps all loans into one and extends the duration for repayment), to enter an informal debt management plan with creditors or to go bankrupt. It might even be doable to control your financial issues a little differently and discover that you are not insolvent at all. In such a position you might be in the position to manage your own financial affairs yourself.

How can I obtain advice on all of my alternatives?

An effective initial step is to contact a number of reputable insolvency firms (just to make sure you are obtaining the best advice and that that advice is consistent). Alternatively you could make contact with one of the not for profit free advice organizations such as the CCCS or a local CAB office. You shouldn't have to pay anything to get advice on your options. You will have togive full details of your financial circumstances and following your assessment you ought to have a significantly better idea of the direction to go next. You might need a number of meetings to reach that point. When you're satisfied that you are aware of and understand your choices, you're stillable towalk away, with the advantage of the advice. There is no need to commit to anything.