IVA - The Pros and Cons

At Express Tax Solutions we believe it is important for you to know the pros and cons of IVA's and by comparing the two together and how it may affect your circumstances will help you gain a better understanding of the overall process.

By entering into an IVA and more importantly maintaining the payments you will be able to demonstrate to all your creditors of your commitment to repay a proportion of the debts in accordance with the formal legally binding arrangement

When a proposal has been made under an IVA to the creditors, they will also be made aware of the Bankruptcy alternative which would detail the amount the creditors would receive back under each option. Creditors usually prefer IVA's as the fee is generally a lot less than the fees incurred in Bankruptcy, and consequently the return for the creditors in an IVA, is higher.

IVA Pros

The advantages of an IVA are:

• An IVA is a private arrangement and will not be made public. You could therefore even conceal this information from your friends and family.
• Once the IVA is completed you will be debt free.
• An IVA protects you from legal action and acts as a safeguard to prevent you from losing your home and assets
• You may continue to have a current account although you will not be given an overdraft facility.
• An IVA will allow you to become debt free within a period up to 5 years.
• An IVA will allow up to 75% of your debt to be written off.
• You will only pay back what you can realistically afford.
• Under the IVA your creditors are not able to contact you.
• You will be protected from any court action.
• The IVA will prevent creditors demanding repayment
• An IVA will help repair your credit rating.
• Your name will not appear in the local paper or London Gazette which is a legal requirement in bankruptcy proceedings.
• You can continue to trade and manage the company with an IVA
• There is no form of publicity with an IVA
• You have a lot more say in the choice of assets you wish to be made available to the creditors in an IVA.
• There are usually higher dividends to creditors who have an IVA.
• You can continue to work within the financial sector (FSA) or HM Armed Forces / Police Force. You would not be able to if bankruptcy proceeding were issued against you.
• You can continue to act as the director of the company with an IVA. In bankruptcy proceedings you cannot.
• There are no professional disqualifications under an IVA.
• You have the right to continue holding public office positions with an IVA.
• The IVA costs are lower than bankruptcy costs.
• You retain your assets under an IVA.
• Your creditors are likely to prefer IVA's as they will be able to claim tax relief against the bad debts.
• Creditors who opposed the IVA will still be bound by it under law.
• There are fewer restrictions in an IVA than there are in bankruptcy.

IVA cons

The disadvantages of an IVA are:

• An IVA can last up to a period of 5 years, whereas bankruptcy only lasts 1 year.
• An IVA will be recorded on the Individual Insolvency Register, which can be searched for by the public.
• You can not dismiss some of the creditors
• The IP will often monitor your wage slips and if your income increases your payment into IVA will be expected to increase too.
• 5% of IVA's that are expected to last 5 years may actually last 6 years.
• With an IVA the insolvency practitioner may request that you release some of the equity in your property as part of the deal with your creditors.
• You must have a minimum debt of £15000, which is owed to at least 3 creditors.
• You must be able to afford to pay a minimum of £200 per month under the IVA.
• An IVA is often referred to as a “golden handcuffs deal”. Although it is a terrific deal, you will be locked up in it for up to 5 years.
• You will be unable to get any further unsecured borrowing.
• An IVA will show up on your credit report for a period up to 6 years.
• You must obtain the agreement of at least 75% in value of the total debts of your creditors.
• If an IVA fails then you may be made bankrupt.
• An IVA is set up and managed by an insolvency practitioner (IP). However, we will recommend the best IP for you.
• An IVA is legally binding on all parties.
• If you make any false representations under an IVA application it is a criminal offence.