EFFECTS OF AN IVA
An Individual Voluntary Arrangement, commonly known as an IVA, contains inherent costs and benefits for the creditor and debtor whose financial circumstances play a role in reaching a compromise. For both parties, however, an IVA has important points worth considering.
First, debtors and creditors are allowed a number of benefits from an IVA. Both parties participate in the proceedings that select the assets creditors can use to satisfy outstanding debts. In turn, the creditor stands to recover at least some of the money that may not have been recovered at all. Second, the cost of an IVA is lower in comparison to bankruptcy fees which helps the debtor use more money to pay debts at the benefit of the creditors. Third, an IVA is not subject to the same publicity that comes with bankruptcy which allows a debtor to continue engaging in business in order to make the money necessary to make payments. Fourth, the terms of an IVA are reached by the creditors and debtor through a vote. Just as a debtor can influence the proceedings, creditors can also influence what assets are used to satisfy debt payment. As long as 75% in value of the present creditors vote to accept the terms of the IVA, all parties are bound to the new terms.
In contrast to the benefits of an IVA, there are the accompanying negative points worth discussing. First, an IVA is typically appropriate only if a debtor has accumulated a minimum of £15,000 in unsecured debts. Since an IVA deals specifically with unsecured debts, secured debts are not included in IVA proceedings at all and those creditors are not party to this process. Secondly, creditors can include savings accounts and Individual Savings Accounts in IVA proceedings in order to settle the terms of an IVA. Major assets such as a debtor’s home can be at risk for loss if creditors decide to include it in the terms. Third, while the stigma of an IVA is significantly less than bankruptcy, the IVA is still recorded in the government’s Individual Insolvency Register effectively making the information public. As a result, credit reference agencies record the IVA which has an adverse effect on the debtor’s ability to obtain credit in the future. Fourth, while a iva does not itself guarantee that a debtor will settle debts, the creditor is still at risk of financial loss if the IVA fails.