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How does an IVA work?

It may sound trite, but an IVA works by agreement. You reach a legally binding agreement [the Proposal] with your unsecured creditors. You do not have to have the approval of all unsecured creditors – as long as you get 75% in debt value of such creditors supporting the Proposal on the day of the meeting of creditors, any creditors who do not bother to vote or who voted against your Proposal.

For example, lets say that your unsecured creditors total £100,000 and on the day of the meeting £50,000 [77%] vote in favour and £15,000 [23%] vote against. This result will mean that your IVA has been accepted and all £100,000 of your creditors are bound by the terms of the Proposal.

What offer do I have to make to my creditors and how do I make such an offer?

There are no hard and fast rules regarding the offer that you have to make to your unsecured creditors. Most offers are a combination of agreed monthly payments out of your surplus income for a fixed period of time [usually 5 years] together with the realisation at some time during the fixed time period of an agreed percentage of the equity in your house [this percentage can vary depending upon the attitude of your creditors].

As a first step, have a look at your estimated monthly income and expenditure [link] to see what you could realistically afford.

In theory, the relevant legislation envisages that you draft the Proposal to creditors, but in reality it is done by a Licensed Insolvency Practitioner [“LIP” see Glossary] who, working with you, will prepare all the relevant documentation [there is a lot!] and will submit the papers to the creditors and the court and will act as Chairman of the meeting of creditors that considers the Proposal.

Do I have to attend the meeting of creditors?

Nowadays, it is very rare for you to have to attend the meeting as the creditors tend to deal with all matters by post – you really just to make sure that you are available to talk to on the day itself.

What if my IVA does not get all my creditors paid?

There is no legal requirement to pay all your creditors in full. As long as you stick to your side of the bargain, as outlined in your Proposal, any amounts still owing to your creditors at the end of the IVA are written off by your creditors.

What percentage of my unsecured debts do I have to pay?

There is no legal maximum or minimum. The creditors want to see the best offer that you can make. The offer needs to be fair both to you and to them.

Will interest on my unsecured debts continue to run in the IVA?

No -  and this is where an IVA is really so much better than an unregulated “Debt Management Programme” where interest and charges will in the main continue to run. 

Do all my creditors have to agree to an IVA?

No – as explained above you only need 75% (by debt value) of your unsecured creditors voting to accept your proposals. And that 75% is only of those who bother to vote at the meeting of creditors.

What about my house?

If there is equity in the property, the creditors will expect a % of that equity to be realised for their benefit during the lifetime of the IVA. Quite often, this will be achieved by a remortgage of the property. Invariably, the % that has to be paid is less than you would have to pay in a bankruptcy. In a bankruptcy, your Trustee in Bankruptcy [see Glossary] would apply to the court to have all of your interest realised for the benefit of your creditors.

What about the mortgages and charges secured on my house?

Such creditors [normally referred to as “Secured Creditors”] are not bound by the IVA save to the extent that their claim is unsecured. In practice, as long as your mortgage is being paid in the normal manner, such Secured Creditors will simply sit on their hands whilst you deal with your creditors via the IVA. You should however note that interest will continue to run on such secured debts.

What if I am unable to make my monthly payments?

This does occasionally happen. Sometimes you are allowed to make the missing payments up or if there is a significant change in your financial circumstances, the Supervisor [see Glossary] can go back to your creditors and seek to modify the terms of your IVA to take account of your new financial circumstances.

What is the cost?

There are 2 separate fees in the process and the watchword is “visibility" to all parties concerned.

Your LIP [see above] acts in two separate capacities. Initially your LIP will act as Nominee when he is acting during the period up to and including the meeting of creditors and thereafter as Supervisor when he is supervising the implementation of the IVA.

Nominee’s fees depend upon the complexity of the matter and can vary from £750 up to £2,000 – these fees tend to be paid before the meeting of creditors. The Supervisor’s fees [anything between £1,000 -£2,000 per year] and on some occasions some of the Nominee’s fees are recovered from the realisations in the IVA itself – such fees are not in addition to any payments made by you into the IVA.

The Nominee’s fees are agreed at the outset by way of a formal Letter of Engagement. The fee is disclosed in your Proposal to creditors as is the basis of how the Supervisor is to be paid.

Why would my creditors rather simply not prefer me to go bankrupt?


Over the last 20 years, IVAs have clearly demonstrated a better return to unsecured creditors. Bankruptcy is a relatively expensive procedure with, for example, a 17% fee levied on all realisations paid into a bankruptcy. This fee is in reality a “tax” which is not paid in your IVA.

What happens at the end of the IVA?

As long as you have met your side of the agreement, any outstanding sums due to your unsecured creditors will be written off.

What is the difference between Bankruptcy and an IVA?

There are many differences, some major some subtle. What we cannot really comment upon is what difference it makes to the individual concerned contemplating these options. We can talk about costs and time periods, and we will always do our best to fully explain the legal effects of these two very different options. At the end of the day it is very much a personal choice. We would refer you to our trade association’s publication “Is a voluntary arrangement right for me?" which explains in some details the pros and cons

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