The IVA Debt Solution Process

For those in debt and threatened by the prospect of bankruptcy, an application for an IVA debt solution could provide an easier option out of a financial nightmare. An IVA debt solution is a procedure where a debtor can arrange to pay his or her debt in full or over a period of time (typically 3-5 years) in order to avoid being declared bankrupt and facing severe financial restrictions later on. This arrangement can be organised either before or after an order for bankruptcy is made.

To make the necessary proposal for an IVA debt solution, an appointed Insolvency Practitioner (IP) is required. This person can be also be a member of a Secretary of State-approved body. It is worth noting that the role of the IP changes throughout the IVA process; their title is ‘nominee’ when the proposal is decided, which shifts to ‘supervisor’ if the IVA debt solution is accepted by creditors. The appointed IP will discuss your financial situation with you and compile a ‘Statement of Affairs’ (SOA) which will form the basis of your proposal. This detailed document includes information including creditor details, monthly expenditures and income and reasons for debt. At this point all payments to creditors should be stopped, and creditors should be advised to deal directly with your appointed IP.

In the meantime, an application for an interim order can be made to the courts to prevent a bankruptcy petition from being made, which gives you time to compose a proposal without the threat of legal action. Creditors are given at least two weeks to make a response to the proposal and a meeting, chaired by the IP, is arranged to count votes from the various creditors. They can choose to ‘approve’, ‘reject’ or ‘approve with modifications’ your proposal. If 75% (by the value of total debts) of all voters approve the proposal, then it is approved unanimously for all creditors whether they have approved or not. If creditors wish to vote to ‘approve with modifications’ the debtor can choose whether he or she wishes to accept the modifications. If a vote proves inconclusive then the IP can adjourn the meeting for up to two weeks while he mediates between the two parties and tries to reach a conclusion.

When the IVA debt solution is approved, the IP compiles a Chairperson’s Report to record the voting process and the overall outcome of the meeting. This is then presented to the court, and the Insolvency Service (http://www.insolvency.gov.uk) is informed so that the IVA debt solution can be recorded on the publicly available Insolvency Register. A new bank account should be opened at this point to deal with the IVA debt solution payments.

The IVA debt solution process can take around four to six weeks, depending on the speed at which the debtor can provide financial information for the Statement of Affairs. The completion of an IVA will render the debtor ‘debt-free’, as outstanding balances are cancelled. It is imperative that those thinking of entering into an IVA debt solution discuss the options available to them with a professional debt advisor to make sure they are making the correct decision.