Will my IVA be accepted? IVA FAQ
Summary: Will my IVA be accepted? - This article evaluates the likely criteria for acceptance of IVA's (Individual Voluntary Arrangement) by creditors.
When debts are unmanageable
When our debts become too large or too many to manage, or we find that we have been relying on further credit which is no longer available, or a change in our circumstances means we have to adjust all our finances, we may need professional help. Explaining our situation to a debt advisor or Insolvency Practitioner (IP) will provide us with information regarding the options to us given our specific circumstances.
Is an IVA the right solution?
Once we have evaluated our options, it may be that an IVA seems the right way forward. The advantages are obvious - one affordable monthly payment to cover all unsecured debt, a definite end point to the debt, legal protection from creditor action etc. However an IVA is not an automatic solution - creditors need to accept an IVA proposal from a debtor through an IP.
The criteria for acceptance by creditors
A debt advisor should be able to give a good indication of the likelihood of an IVA being accepted as creditors have made those criteria known. When an IP agrees to put an IVA forward, again it's a strong indicator that the IVA is likely to succeed. Creditors clearly want as much of their debt back as possible, but when the likely return to them in an IVA is likely to be more than they would receive in a bankruptcy situation, the IVA is probably the best solution for them. The key components in the decision-making process are:
Insolvency - creditors want to see evidence that the debtor cannot afford to pay their debts back either through monthly payments or by selling assets.
Debts - the unsecured debts need to be at least £11 - £12,000
Creditors - if there are at least 2 creditors and at least 3 lines of credit this part of the criteria is acceptable. However less creditors or lines of credit can still be considered for an IVA.
Assets - if a debtor has assets of significant value then the creditors may consider bankruptcy a preferable option. E.g. someone with £50,000 of unsecured debt, offers £250/mth in an IVA, but has £40,000 of equity in their property. They are insolvent (debt is more than assets) but creditors may conclude that bankruptcy would provide a better return than an IVA.
Repayment plan - creditors may feel an IVA is inappropriate if the debtor is able to clear their debts within 5 years. E.g. if someone owes £15000 and has £300/mth disposable income. The £300 may not be enough to meet the contractual repayments, and they may be insolvent, creditors may conclude that a repayment plan such as a Debt Management Plan could clear the debt in less time than an IVA.