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We have discussed
Individual Voluntary Arrangements but just to recap,
an IVA is an agreement between a "debtor" (the person
with the debt) and his/her "creditors" (those to whom
money is owed).
The purpose of the agreement is to avoid having to
bankrupt an individual (or company) in order to recover
debts. Instead the IVA allows the debtor to avoid
bankruptcy and repay a proportion of the debt over a
fixed period. On this page we discuss the pro's & cons
of entering into an IVA.
We strongly recommend that you receive advice from a
regulated solicitor or insolvency practitioner before
proceeding with an IVA Click here for more on
bankruptcy advice.
Advantages of entering into an IVA:
You can retain assets such as property - but may need
to take out second mortgages to use capital as a
makeweight. Unless you can convince your creditors that
you can otherwise meet your obligations.
There are little or no restrictions obtaining further
personal credit although in reality such credit might
prove difficult to obtain.
The IVA proposals are drawn up by the Debtor and are
flexible to accommodate personal circumstances.
The Debtor does not suffer the restrictions imposed
by bankruptcy, such as not being able to act as a
director of a limited company etc.
There is no publicity such as a bankruptcy notice in
the local press.
The costs of administering IVA's are considerably
lower than in bankruptcy this will mean a higher return
to creditors.
IVA's are classified as an insolvency procedure and
as such creditors can reclaim tax and VAT relief as a
"bad debt".
Finally, a sole trader or Partner in a business can
continue to trade and generate income towards repayment
to creditors which would otherwise not be possible
through bankruptcy or would require the sale of key
assets.
Disadvantages of entering into an IVA:
The period of the IVA is generally between 3-5 years
and does involve repayment of credit and management /
set up fees.
By opting for bankruptcy, the slate can be wiped
clean in a shorter period (sometimes as short as 6
months to one year).
Although the stigma and restrictions imposed by
becoming a bankrupt may of course be longer lasting.
You are still at risk of losing your assets if you
breach the agreement.
The creditors can resume bankruptcy proceedings.
There will be no opportunity for a Trustee (in
bankruptcy) to investigate the actions of the Debtor or
possibility of hidden assets.
BEWARE - the
high level of fees chargeable has led to a dramatic
increase in IVAs in the UK. Make sure the IVA is the
best deal for you and not simply the best deal for your
advisor.
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