An Individual Voluntary Arrangement or IVA is a legally binding contract between a debtor and their creditors, supervised by a Licensed Insolvency Practitioner. The purpose of the IVA is to enable you to reach a compromise with the creditors and avoid the consequences of bankruptcy. It is less restrictive than bankruptcy but is governed by similar legislation, thus providing the comfort of legal protection and the knowledge that the process is handled by a qualified Insolvency Practitioner who acts as a Supervisor during the term of the IVA. Advantages of a IVA • Interest and charges are frozen. • Monthly payment is based on what you can afford. • Debt free in 5 years. • You will pay no direct fees. The Insolvency Practitioner will collect his fees from your contributions to the creditor. • No more creditor contact throughout the term of the arrangement. • Avoid all of the unfavourable stigma and restrictions of bankruptcy. • Legal action and collection action will stop. • Compels you to address your financial management issues. • Removal of the temptation to get further into debt. Disadvantages of a IVA • Require a minimum debt level of £15,000. • In order for the IVA to be agreed, you require approval to the value of 75% of the unsecured creditors . • Your home and assets may still be at risk if the creditors decide not to exclude them. • You may find getting credit in the future more expensive. Creditors will assess your risk level based on your financial history. • You will not be able to use your store or credit cards. These will be cut up. • You will normally not be allowed to borrow any more money until you have successfully completed your arrangement. It may however be possible to change an existing mortgage or take a new one while you are in an IVA . • If the IVA fails as a consequence of you not meeting your obligations, it is likely that you will be made bankrupt. Here is what the Insolvency Service in the UK has to say to those considering bankruptcy: “Before you take any action to apply for your own bankruptcy, you should get your own legal or financial advice about bankruptcy and the other options available to you. The Insolvency Service and the courts cannot advise you on specific insolvency problems; for example, whether you should go bankrupt or your company should go into liquidation, or whether you should look at alternatives. You should get independent advice. You may consult a solicitor, a qualified accountant, an authorised insolvency practitioner or a reputable financial advisor.” Bankruptcy is a formal act of insolvency. It is a mechanism whereby an individual can be protected from his creditors that he cannot pay. This situation may arise through business debts, or unsecured borrowing such as credit cards or loans or a combination of both. Where, possibly because of business debts or personal debt (e.g. credit cards) or both, it is in client’s interest to file what is known as his/her own debtor’s petition at Court. The process is fairly detailed, but really, when understood, can be straight forward. In effect, in day to day language, the protection of the Court is obtained, and matter will be passed out to a ‘trustee in bankruptcy’ who, originally, will be Official Receiver but is liable to transfer to a private practitioner. We can guide you through the process, but it must be very carefully considered beforehand. If there is an alternative, it can be hazardous to file for bankruptcy if there are substantial assets involved, e.g. material equity in property, particularly the family home. As regards your home, if it is jointly owned with a partner (or anyone), only (say) 50% of equity comes into reckoning for bankruptcy purposes. If say, the person filing for bankrupcy owns his/her home sole, say: Open market value of home (subject to verification): £100000 then under normal circumstances, and subject to negotiation, the trustee’s interest can be acquired back for all time for circa £1. If, say, equity was £10000, then, subject to agreement, trustee’s interest should be acquired back for around £5000. Obviously, if unsecured debts are a great deal more then £5000, it can still be a worthwhile exercise. A 3rd party would need to raise the £5000. Cars which are needed for work purposes, or looking for work, up to a reasonable value net of hire purchase or lease purchase finance, can be treated as ‘exempt assets’ within the bankruptcy. We can help guide you through the process and negotiate on your behalf. Please note, if any material sum is required to pay trustee (say the £5000 mentioned by example above), then the funds must come from a 3rd party, which can include a partner. If, say, you had yourself £5000 at date of bankruptcy, that would be a bankruptcy asset which the trustee will claim. Advantages of a Bankruptcy • The experience usually isn’t as traumatic as it is perceived by the public in general. • While notice of your bankruptcy will be published in the newspaper; it’s usually not read or noticed by most people. • Most Debt is written off and you gain a degree of freedom and a certain peace of mind. • Most cases are automatically discharged from bankruptcy after one year. • You are allowed to keep basic possessions and the tools of your trade if you are self employed • Even though you may be issued with an IPO directing you to pay a proportion of your surplus income, this is only after generous living expenses have been deducted. Your living expenses budget allowed in bankruptcy are far more generous than in an IVAIVA
Bankruptcy
Mortgage: (£95000)
Equity: £5000