There is no need to despair over debts and deadlines. There are several legal remedies to insolvency that help people recover from financial disasters. The UK Parliament passed the Insolvency Act 1896 to address rampant bankruptcy and introduce an alternative called the Individual Voluntary Agreement. An IVA lets debtors propose a scheme to pay back the money they owe within 5 years or less. If approved, the new terms will negate the old ones from the original loan contracts. Creditors are likely to receive a mere partial payment but it is better than potentially getting nothing in case of a bankruptcy. An insolvency practitioner will be able to assist in each stage of the approval process.
The law laid out the list of qualifications for an IVA. Applicants must be able to fulfill these in order to the courts to give their consent. The total amount of debts should not go under £10,000. Anything below this figure is considered insufficient and will have to be solved in other ways. The number of creditors must also be more than two to merit inclusion in the program. An applicant must have a job that provides a continuous flow of income as this will be the main source of the payments and not unemployment assistance, government benefits, and the like. The minimum for monthly debt servicing is £125. Applicants must demonstrate their ability to come up with this on a regular basis.
Most of the people who avail of the IVA are consumers who have incurred more debt that they can actually afford. If the original terms are followed, then the funds will simply run dry. Applying for an IVA requires proof of this predicament while convincing the relevant parties that smaller payments are possible on an extended basis. This narrow window of opportunity means that not everyone can be accommodated. It is up to the courts to weigh all of the factors and make the decision.
However, approval by the court is only the first step. The creditors will ultimately have to sign on to the proposal since it is their money that hangs in the balance. If they feel that the plan is beneficial for them then they will give their nod. If it seems like a very poor substitute, then they may decline. The majority tends to accept IVA proposals after negotiating their preferred terms. Consumers can breathe more freely when this happens as over two-thirds of the debts may be written off. What's more, there will be a freeze on the interest rates for the duration of the payments at zero percent. There will be no worries regarding further increases.
Initiating the Agreement
Debtors must contact an Insolvency Practitioner to assist them in this endeavor. The first thing on the agenda is to go over the qualifications and make sure that the case falls within the scope of the IVA legislation. This means going over the current finances and future prospects, calculating monthly incomes and expenses, as well as other crucial tasks. The agreement must be initiated by the debtor by furnishing a document containing his Statement of Affairs and the actual proposal for the payment terms.
Creditors will take a look at these documents in a meeting called by the IP acting as the nominee. Then a vote will be taken to either approve the proposal or to set it aside. Each creditor's vote will have a weight that is proportional to his share of the total debts. An overwhelming majority of 75% or more is needed to pass the agreement. If this number is obtained, then even those who are not in favor of the proposal will have to abide by it. They can of course appeal the decision in the courts. The IVA will commence once all legal impediments have been settled.
A person can get out of debt within 5 years or less as long as the terms of the agreement have been fulfilled. Sometimes debtors require a 12-month extension to complete the payments. The end of the prescribed period coincides with the write off of the outstanding balance. Financial freedom is finally attained after years of diligence.