An IVA is effectively a contract between an individual and his/her creditors that ring-fences their historic debt to allow continuity of trade or employment and for contributions (either by way of a lump sum or agreed monthly payments) to be made in settlement of the debt.
The individual retains control of their assets (eg the matrimonial home) whilst at the same time protecting them. This is important, for example, in cases where business assets are required for ongoing trading.
In order for an IVA to be approved, it requires more than 75%, in value, of creditors who vote on the IVA proposal (at a meeting of creditors convened for this purpose) to be in agreement. This means that if you have one or several large creditor(s), it is they who can effectively control the outcome of the process.
On the other hand, as long as the larger creditors are in agreement, then the IVA will be binding on all creditors, including any smaller creditors who had perhaps voted against it.
It is not necessarily the case that an individual will have to offer to repay 100% of the debts they owe. In most IVA cases, creditors only receive a fraction of the debt, often as little as 20% to 25%. The amount creditors will receive depends on:
– The value of the individual’s assets
– The amount of disposable income
As long as the individual can demonstrate that their IVA proposal represents the best offer to creditors (usually that means the IVA will yield a better return to creditors than under a Bankruptcy scenario) then in the vast majority of cases it will be accepted.
If creditors aren’t completely happy with what has been proposed then they may accept the IVA but put forward some modifications which the individual would have to agree to.
IVAs can be extremely flexible, for example if there is a change in circumstances, eg redundancy or a long-term illness. It is often possible to amend the IVA terms, provided the agreement of the appropriate majority of creditors can be obtained.