Debts On Ice

How We Can Help

At Debts on ICE we pride ourselves on providing best advice to resolve your debt problems in the most expedient and affective manner.  Once we have had the opportunity of carrying out a discreet and confidential interview we will put forward our recommendations, discussing the merits and answering any question you might wish to ask. We will only recommend an IVA where circumstances dictate that it forms the best possible option.

Having carried out a detailed income and expenditure / asset and liability survey we will liaise with one of our qualified insolvency practitioners selected from our panel of approved insolvency advisors. We then maintain a watching brief to ensure the best possible outcome

The services of Debts on ICE with regards to IVA’s are provided without any direct charge to yourself.

How Does It Work

IVA’s were introduced in 1986 and were originally designed to offer small businesses with financial problems an alternative to bankruptcy. Nowadays an IVA can be taken out by anyone who lives in England, Wales or Northern Ireland, with unsecured debts of at least £20,000. IVA’s aren’t available in Scotland, where the nearest equivalent is a Protected Trust Deed.

To get an IVA you need to have a stable income and will usually have assets, like a house or car. Not all debts can be included in an IVA, the main ones include overdrafts, personal loans, credit and store cards, catalogue debts and student loans. You can also include tax or VAT owed to Revenue and Customs, though that may be given priority. Mortgages and other loans secured on property can’t be part of an IVA, neither can rent and council tax arrears, magistrates’ court fines, speeding or parking tickets and maintenance or Child Support Agency arrears, separate arrangements have to be made for these.

Advantages and Disadvantages of an IVA

Whilst certain circumstances will dictate that an IVA provides the best possible solution it is a procedure which needs to be considered very carefully. In particular the following points need to be considered.

How An IVA Is Set Up

As an IVA is a legally binding agreement you can’t set one up on your own, it needs the help of an Insolvency Practitioner (IP) who will set up and supervise the arrangement once it is in place. First the IP will look at your assets and income and work out how much you can afford to pay in a lump sum and/or in monthly payments. A proposal is then put together to present to creditors confirming the best possible offer that can be made. In some cases the IP will apply to the courts for an ‘Interim Order’ to prevent creditors from taking bankruptcy proceedings or other forms of legal actions. In most cases however, this is omitted to assist in reducing costs, but it does mean that creditors are still at liberty totake enforcement action until the IVA is agreed.

Whether or not an Interim Order has been taken, the next step is to send the proposal to the creditors who are asked to vote on it at a creditors’ meeting. If 75% of your creditors ‘by value’ vote for the IVA to go ahead, it becomes binding on all creditors, even those who did not agree to it. It is important to note that ‘By Value’ means 75% of the total debt value and not the number of creditors, therefore, if the creditor that is owed the most money votes against the proposal the IVA will fail.  If the proposal is accepted then interest is frozen for the duration of the arrangement and creditors are not allowed to make contact regarding outstanding debts. A standard IVA lasts for 5 years or 60 months and as long as all 60 monthly payments are made then the balance of debts are written off.

Unfortunately many adverts for IVA’s tout them as ‘get out of jail free cards’ with promises that large proportions of debt can be written off. The Office of Fair Trading has criticised adverts which falsely claim that up to 90% of debts can be written off when a more realistic percentage would be closer to 60%. The fact is that creditors will only agree to an IVA if they are convinced they will get more money back this way than by taking bankruptcy action. Under most IVA’s the payback is usually around 30% but many lenders will not accept less than 40p to 50p in the pound.

An ideal IVA candidate should have at least £200 per month stable disposable income before an IVA can be considered. Disposable income is calculated as the amount left over after essential living expenses have been covered which will normally exclude, holidays, clothes, gifts and gym membership all of which are counted as luxuries.

What About The Car or Other Assets?

Unlike Bankruptcy, as long as there is enough income to make monthly payments then the house and other assets can usually be protected. Creditors may however, insist on up to 75% of the equity share being released from the home and this usually entails re-mortgaging the home at the end of the IVA period. If the property is in negative equity when the IVA commences then creditors may insist on a revaluation during the fourth year of the arrangement. If there are any endowment policies linked to the mortgage these might have to be cashed in and proceeds paid into the arrangement plus any savings will also have to be handed over.

If a car is owned but it can be proved that it is needed for work it is unlikely that it will have to be sold, but if the car is under a hire purchase agreement then this might not be able to be included in the IVA as the finance company could repossess the vehicle. Normally HP payments will be allowed to be paid but once the term ends then that amount will have to be paid into the arrangement.

Whilst an IVA is unaffected by state pension any pension contributions into a private pension scheme may have to be suspended and the equivalent amount paid into the arrangement.

What Will an IVA Cost?

Two fees are payable to the IP, firstly a ’Nominee Fee’ for preparing and proposing the IVA and a ‘Supervisor Fee’ to run it. The Nominee Fee is around £2,500 with an annual supervisor fee of around £1,000 to £1,500 per year for the duration of the arrangement. In total a typical cost for an IVA is around £7,500 which provides the motive for them being sold very aggressively and for this reason they are not suitable for those with low levels of debt.

The way in which charges are applied vary with different companies and it is very common for the fees to be deducted from monthly payments which means that almost all of the first years payments are swallowed up by the IP’s fees and do not go towards paying off any of the debts which means that indebtedness can rise substantially during that period.

If an IVA proposal proves to be unsuccessful, or if an arrangement succeeds but payments are not maintained, then clients may be faced with being put into Bankruptcy.

What if Financial Circumstances Change During the IVA?

A client’s circumstances are reviewed each year to ensure that payments are the most that can be afforded but in the interim it is the responsibility of the client to advise the IP of any changes that may occur. Sadly, any windfalls such as lottery wins bonuses, gifts or inheritances must also be declared to the supervisor and paid into the IVA. This will happen even if the amount exceeds the amount that has been agreed to be paid back. If it means that the full amount of the debts can be cleared then they will have to be paid in full together with the IP’s fees.

If a change in circumstances restricts the ability to maintain monthly payments then the IP can go back to the creditors with a reduced offer but there is no guarantee they will agree to it.

It is absolutely crucial that payment amounts agreed when the IVA is set up are realistic and sustainable and if there is any doubt then an IVA is not the right option.

How does an IVA Affect A Credit File?

There are fewer restrictions with an IVA than with Bankruptcy but it is wrong to suggest, as some adverts do, that there aren’t any consequences. Details of an IVA will appear on a credit file for up to six years (longer than the IVA period) and might have an impact for even longer.

At the end of the IVA period the UK’s three main credit agencies need to be contacted, Experian, Equifax and Callcredit. They need to be notified that an IVA is complete by sending a copy of a letter which can be obtained from the IP.