Debt Secrets

IVA secret 7:
Never pay the Insolvency Practitioner any money in advance

Insolvency Practitioners are legally obliged not to start charging you until you have actually started your IVA. Make sure you postpone any fee payment until after the creditors meeting.

IVA secret 8:
Get the initial meeting for free.

Most Insolvency
Practitioners will give you an initial free meeting. Ensure that they don’t retrospectively charge you for this by invoicing you after the IVA has been proposed to your creditors. In general you shouldn’t receive any invoices as fees are written into the arrangement.

IVA secret 6:
Once you are certain that an IVA is best for you, go directly to an Insolvency Practitioner

Debt Management companies do offer a debt advice service. In addition they justify the fees on the basis that they ensure the IVA receives approval. Their argument is that you will have an advocate for your IVA, but the fact is that, besides giving initial advice, their overall value is, in my opinion, questionable. There is little that a debt management company can do that a customer focused Insolvency Practitioner cannot also do.

Sometimes Debt Management Companies claim that by collating your Statement of Affairs for the IP they are doing work cheaper and that saves on fees. That is not the case. An IP usually has an assistant prepare a draft of the Statement of Affairs anyway, so, if you come to the IP reasonably prepared the IP’s assistant can quickly organize it and present it to the IP for review.

If you want to do an IVA, you are probably better off going directly to the Insolvency Practitioner after you have taken initial advice that an IVA is the best move for you.

IVA secret 5:
If most of your debt is owed to one creditor then consult them first before you try to do an IVA.

As 75% (in value) of your creditors have to vote in favour of your IVA proposal there is no point in going ahead with the IVA proposal if that creditor does not already view it favourably.

For example, if you owe £80,000 to five creditors and you have an unsecured loan for £61,000 with one of those creditors then that creditor has 76% of the vote – a sufficient percentage for that creditor to cast the deciding vote on whether you can proceed with an IVA or not.

So you should save yourself time and hassle and consult with them first either about the possibility of an IVA or you might even try negotiating a settlement to your debts (see the options and template letters in the resources section). In any case many IPs stipulate that you should have at least 3 creditors before they will arrange an IVA for you.)

Let me tell you; if you really want to do an IVA and not go bankrupt then a “Full and final settlement” IVA is better. Being in debt to a friend or family member is far better than being exposed to the stringent rules that govern a repayment IVA. In a repayment IVA you could suffer the punitive measures that apply in the case of IVA failure – which can occur if you miss 3 months payments. In a repayment IVA you could be paying monthly for 2 years and then not be able to afford an IVA and end up bankrupt anyway. All that money you paid would be then “lost”. Also in a full and final settlement IVA you can get better terms, usually a lower settlement and the IVA is completed in a matter of weeks not five years unlike a repayment IVA.

However all of this is subject to your creditors accepting your proposal for a full and final settlement. Your creditors will compare the lump sum they will get with the full and final settlement IVA against how much they would get if you paid into the IVA monthly for the five year period. If they can get a lot more out of you in the repayment IVA they will insist you do that.

IVA secret 3:
Vested interests might be pushing you into an IVA when bankruptcy is a better solution

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IVA Secret 1
Open a new bank account before you start your IVA

This advice applies to people who owe money to the bank that holds their day to day account. The bank, once they discover that you are doing an IVA, may be tempted to take your salary lodgement in your main bank account to repay your loans and overdrafts. To avoid this scenario it is best to move the bank account to another bank before starting the IVA.
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The majority of IVAs, are monthly repayment IVAs, which, as described in the IVA facts article, involve the debt being paid over a five year period. An alternative, where the debt is settled once and for all by the payment of a lump sum is called a final settlement or lump sum IVA. This is attractive option to your creditors when you can obtain a lump sum but have low disposable income making a repayment IVA difficult. The money for the lump sum can be obtained from sympathetic relatives or via a re-mortgage of the property.

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An Individual Voluntary Arrangement or IVA is a legally binding agreement between you and your creditors. You agree to make monthly payments towards repaying your debt over a period of five years. If there is debt remaining then it is written off. (However, please be aware if you choose the IVA route that there are a number of situations where the amount you have to pay off could equal or exceed your total debts). In addition, your creditors will probably require you to re-mortgage your house (if you have one) towards the end of your IVA. Again please be aware that, due to the higher new monthly mortgage payment, this can be and has been a major contributory factor in the cause of people going bankrupt at the last stage or end of their IVA.

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