Self-Employed IVAs: Pros and Cons
When choosing a debt solution, there is clearly a lot to consider. Below we break down the pros and cons of choosing an Individual Voluntary Arrangement if you are self-employed.
If you are self-employed, the fate of your business may well be the single biggest factor when deciding on the right debt solution.
Unlike bankruptcy, being in an IVA does not prevent you from running a business – whether as a sole trader, director, or partner. You will also be able to keep all the assets necessary to run your business, as well as your personal assets. Once your IVA has been established, creditors will no longer be able to contact you, but must instead communicate through the Insolvency Practitioner (IP) handling your case.
This can mean a huge reduction in stress, allowing you to focus on driving your business to succeed. Self-employed IVAs also allow for an irregular income – this flexibility means you will usually be able to reduce your monthly payments if necessary. IVAs also allow you to become debt-free in the relatively short space of five years, meaning your business gets a fresh start sooner.
Although it is unlikely, creditors are not guaranteed to vote in favour of your IVA. If less than 75% of your creditors (by value) vote in favour of your IVA proposal, it will not pass, and you will need to find an alternative solution. If an IVA is accepted, you may be required to sell non-essential assets, or downgrade to lower-cost alternatives, to release extra equity for your creditors. However, this should not disrupt your day-to-day business activities.
If your IVA fails, which is rare, but can happen if you do not keep up with your agreed-upon payments, your creditors may decide to petition to make you bankrupt, which would result in you losing your business.
Another popular concern for anyone facing insolvency is how their home will be affected – unlike with bankruptcy, an IVA will not put your home at risk.
A self-employed IVA will not require you to sell your home, and will not prevent you renting a property in the vast majority of cases. If you do rent your home, it is worth double checking with your landlord that your lease has no stipulations about being in an IVA.
Although you are not required to sell your home to complete your IVA, you will be required to release equity from the property, if there is enough, in the IVA’s final year. This can set you back in the process of paying off your mortgage. If you are not a homeowner, this equity payment will need to be replaced with either an equivalent payment from a third party, or making your agreed-upon payments for another year.
If you owe money to companies which your business works closely with, you may be concerned about how entering into an IVA could affecting your working relationship with them.
All creditors included in the terms of your IVA are legally prevented from taking legal action against you once the IVA has been accepted. This means that if any creditors have been harassing you for payment, they will no longer be able to do so. You may also be able to continue to do business with companies which are essential to your operation – this is discussed when your IP first presents the IVA proposal to creditors. Creditors must agree to freeze interest and fees on your debts, and write off any remaining debt at the end of your IVA.
However, some creditors might not agree to continue working with you during the course of your IVA. You may not be able to keep your business bank account either, if you owe the bank money, whether through an overdraft on the account or other loans.
For more advice about self-employed IVAs and other debt solutions, get in touch with one of Creditfix’s friendly advisors on 0808 2085 198.