Definition
An Individual Voluntary Arrangement (IVA) is a formal agreement between a debtor and their creditors to repay all or part of their debts. It is a legally binding arrangement overseen by an insolvency practitioner. The IVA typically spans over a period of five years, during which the debtor makes agreed-upon payments based on their affordability. This arrangement can help avoid bankruptcy, allowing the individual to retain control over their assets and manage their debts more feasibly.
Examples
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Jane’s IVA: Jane had accumulated $50,000 in personal debt. Unable to manage her debt repayments, she entered into an IVA. An insolvency practitioner assessed her financial situation and arranged for her to pay $500 a month for five years. Upon completion of the IVA, a portion of her debt was written off by her creditors.
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Mark’s Business IVA: Mark’s small business accrued $200,000 in debt. To avoid liquidation, he entered into an IVA. The insolvency practitioner negotiated a payment plan of $3,000 per month for five years. His creditors agreed, helping him manage his debts while keeping his business operational.
Frequently Asked Questions (FAQs)
What is the difference between an IVA and bankruptcy?
An IVA allows debtors to retain control over their assets and avoid bankruptcy. It is a voluntary agreement, whereas bankruptcy involves court proceedings and can lead to asset liquidation.
How long does an IVA last?
An IVA typically lasts five years, though the duration can vary based on individual circumstances and creditor agreements.
Can an IVA affect my credit rating?
Yes, an IVA will impact your credit rating. It will be recorded in your credit report and can affect your ability to obtain credit during the period of the IVA and for some time afterward.
Who is eligible for an IVA?
Individuals with unsecured debts (e.g., credit cards, personal loans) who are struggling with repayments and have a regular income may be eligible for an IVA. An insolvency practitioner can assess eligibility.
What happens if I miss an IVA payment?
If you miss a payment, you should inform your insolvency practitioner immediately. Missing payments can jeopardize the arrangement, potentially leading to failure of the IVA or creditors demanding further action.
Can an IVA be canceled?
Yes, an IVA can be canceled if both the debtor and creditors agree, or if terms are not adhered to. This can result in creditors taking further legal actions such as bankruptcy.
Related Terms
Voluntary Arrangement
A voluntary arrangement is an agreement between a debtor and creditors to repay debts in a manageable manner, either involving individuals (IVA) or businesses (Company Voluntary Arrangement or CVA).
Insolvency Practitioner
An insolvency practitioner is a licensed professional who manages IVA, bankruptcy, and other insolvency procedures. They mediate between the debtor and creditors to formulate an agreement.
Bankruptcy
Bankruptcy is a legal status for individuals or entities that cannot repay their outstanding debts. It involves court proceedings and can lead to asset liquidation.
Online Resources
Suggested Books for Further Studies
- “Guide to Individual Voluntary Arrangements: Everything You Need to Know About IVAs” by Steven Marbell
- “Personal Insolvency Law in Practice” by Steven A. Frieze
- “Debt Solutions from Bankruptcy to IVAs: The Practical Guide” by C. Michael Lewis
Accounting Basics: “Individual Voluntary Arrangement (IVA)” Fundamentals Quiz
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