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What types of debt can an IVA include?
12 May2009
An IVA (Individual Voluntary Arrangement) is a legally binding agreement which can allow borrowers to write off the debt they can`t afford - the debt they have no realistic chance of repaying in a reasonable time.
IVAs are there to help people clear their non-priority debts: credit cards, store cards, overdrafts, unsecured loans, etc.
That doesn`t mean an IVA can write off your mortgage debt. Priority debts, such as mortgages, court fines, secured loans and Child Support Agency payments, cannot be written off in an IVA (or in bankruptcy, for that matter).
An IVA can, however, help you stay on top of your priority debts...
IVAs & different types of debt
When you enter an IVA, the whole agreement is based on the idea that you`ll keep on repaying your priority debts: your mortgage / rent, your secured loans, your utility bills (gas, water, electricity), any Magistrates Court fines you may have, any child maintenance, etc.
So, when you`re working with your Insolvency Practitioner to draw up your IVA proposal, you`ll figure out exactly how much of your monthly income will be taken up by payments to your priority debts. The amount that`s left is what would be available to pay into the IVA so your non-priority lenders can receive a portion of the money you owe them.
This is why your priority creditors aren`t directly involved in the IVA itself - they know they`ll keep on receiving their repayments at the normal rate. Your non-priority creditors are the ones who`ll have to decide whether to accept the IVA (and accept smaller, regular payments), or to reject it and try to pursue different ways of recovering their money.
Approval: the (non-priority) creditors meeting
Before an IVA can get started, 75% of the voting non-priority creditors by debt value must agree to the terms laid down in the IVA proposal. `By debt value` simply means that creditors who own 75% of your debt between them must agree to the terms of the IVA.
An example. Imagine you have four non-priority creditors:
| You owe |
£ |
% |
| Creditor A - your bank (overdraft) |
3,000 |
15 |
| Creditor B - a credit card provider |
4,000 |
20 |
| Creditor C - another credit card provider |
5,000 |
25 |
| Creditor D - an unsecured loan provider |
8,000 |
40 |
| Total |
20,000 |
100 |
As the `%` column shows, your IVA would be approved if Creditor D and two of the other creditors approve your IVA proposal, as this would give at least 75%.
If Creditor D and one other creditor approve it, this won`t be enough (as this would give only 55%, 60% or 65%).
And if Creditor D rejects the IVA proposal, there`s no way your IVA can go ahead, as the other creditors only add up to 60% between them.
A note about IVAs
An IVA is only an appropriate solution for people who can commit to making regular payments for the full duration of the IVA - people whose income is irregular should consider different ways of tackling their debts.
Also, an IVA will have a considerable impact on an individual`s credit rating for six years from the time it starts. Of course, the IVA will (probably) be running for the first five of those years, but this can still make obtaining credit harder and more expensive during the year after it finishes.
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Tags: types of debt, types, debt, debt types, iva, iva debt