Individual Voluntary Arrangements (IVA's) - advantages & disadvantages

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.

We also offer a PPI reclaim service, why not use our PPI compensation calculator to see what you could get back.