Can anyone enter an IVA? IVA FAQ

Summary: Can anyone enter IVA? - This article explores the circumstances in which an individual is likely to find an IVA (Individual Voluntary Arrangement) application to be successful.

Can anyone enter an IVA?

The simple answer to the question is no - not everyone can enter an IVA. An IVA (Individual Voluntary Arrangement) is a formal debt solution involving insolvency. The debtor needs to demonstrate that they don't have enough disposable income in order to meet contractual repayments and not enough assets to sell to clear the debt.

What is disposable income?

For an individual or couple, it is usually straightforward to calculate income into the household via payslips, benefits, other contributions etc. For the self-employed or Directors of companies, this can be more difficult, but a realistic average after business expenses and tax provision should be possible. From this income, a reasonable expenditure budget should be created for the household. This will include all household bills, housekeeping, phones/TV, medical/dental, travel, social etc. The difference between total income and the total expenditure is called the disposable income and generally speaking, this is the amount available for debt repayments.

What counts as assets?

If a client has any savings, shares etc they will be expected to offer these to the creditors through the IVA. Homeowners will be asked to find out how much equity is in their property (or properties) by obtaining an estate agents valuation and mortgage statement. The value of any car(s) will be noted and valuable ones may need to be downsized with the profit offered to creditors. If the value of the assets significantly exceeds the value of the unsecured debts, then it is likely that an IVA will not work. Creditors will conclude that the debtor has the ability to clear the whole debt.

Can I clear the debt in 5 years?

There are some circumstances where a debtor may be insolvent yet still an IVA may be rejected. If someone owes £15000 and the client has £300/mth disposable income, this may not be enough to cover all contractual repayments. However at £300/mth the debt could be cleared within 5 yrs and creditors are likely to regard an IVA as inappropriate and expect the debtor to look towards a Debt Management Plan. The ability to repay the whole debt within 5 yrs does depend on the creditors' willingness to stop all interest charges but this often happens in a DMP.