What are the IVA rules for creditors?

When it comes to IVAs, it can feel like there are endless rules for debtors but little information on what rules creditors must adhere to.

But this couldn’t be further from the truth and just as debtors are exempt from making certain financial decisions during an IVA, there is a clear set of guidelines that creditors must also follow to ensure the arrangement is a success for everyone involved.

In this guide, we’ll outline the rules creditors must stick to during an IVA so you can know what to expect from the IVA process.

How does the IVA process work?

An Individual Voluntary Arrangement (IVA) is a legally binding debt solution that can allow you to repay your unsecured debts through a series of monthly payments or in a single lump sum. The process usually lasts five years and, in most cases, you will end up repaying less than the total amount you owe.

Unlike other debt solutions that can be managed by a debt management company, Individual Voluntary Arrangements can only be set up and managed by Insolvency Practitioners (IPs). They will provide expert debt advice and assess your finances to work out what you can afford to pay each month, which can determine how long your arrangement will likely last.

In order for your IVA to be accepted, your creditors must come to an agreement on how much your monthly payments will be. When the terms of your arrangement have been accepted by a majority, your creditors must stick to the rules outlined in your IVA proposal and will no longer be able to contact you or harass you regarding the outstanding debt.

During your IVA, your credit rating will be impacted for six years from the date of approval and your details will be noted on the Individual Insolvency Register but this is only likely to be accessed by lenders, creditors and credit reference agencies. If you’re a homeowner, you may also be asked to release equity towards the end of your arrangement and send the money to your creditors.

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What is a creditor’s role in an IVA?

Your creditors are, simply, the people or businesses that you borrowed money from and, therefore, now owe money to.

They will play a central role in your IVA but you will have little direct contact with them because all or most communication will be handled by your Insolvency Practitioner who is responsible for receiving your monthly payments and dividing them amongst your creditors.

Because your creditors will likely receive less than what they are owed during your IVA, they must also vote on the proposed terms of your arrangement before it can go ahead. If a creditor is unhappy with any aspect of your IVA, they can vote to make changes (called modifications) during a creditors meeting.

An Individual Voluntary Arrangement (IVA) is a legally binding debt solution that can allow you to repay your unsecured debts through a series of monthly payments or in a single lump sum

What happens during a creditors meeting?

A creditors meeting is an opportunity for your IP and your creditors to discuss the proposed terms of your IVA and, more importantly, whether an IVA is the most suitable debt solution for you. They are usually held remotely and whilst it is not necessary for all your creditors to attend, you will be advised to attend so you can ask any questions you may have on anything from Payment Protection Insurance (PPI) to the Individual Insolvency Register.

Before a creditors meeting can take place, an IVA proposal must be drawn up by your IP. This is essentially a document that outlines how you plan to repay your creditors. It will then be sent to you and your creditors between 24 and 28 days before the creditors meeting to give both sides enough time to gather their thoughts.

The main purpose of a creditors meeting is to discuss and vote on your IVA proposal. If any changes are to be made (an increase in monthly payments or extension to the length of your arrangement etc.), this is when they should be discussed.

The creditors that you owe over 75% of your unsecured debt must agree to the arrangement before it can officially go ahead. When this happens, all your creditors will be entered into the arrangement whether they voted for it or not.

 

Furthermore, each creditor has a vote that is equal to the percentage of the debt they are owed. For example, if your total debt comes to £10,000 and you owe a creditor £3,000, their vote will count as 30% of the total available votes. If a creditor fails to vote, their vote will be cast as what the majority of your creditors have voted for.

What is an IVA protocol?

During a creditors meeting, some of your creditors may have signed up for an IVA protocol which is essentially a set of terms and conditions on how an IVA proposal should be written. It was introduced in 2008 to help simplify the often complicated IVA process and make it fairer for everyone involved.

If your creditors agree to follow an IVA protocol, they are voluntarily agreeing to not make any changes unless absolutely necessary and if modifications need to be made, they must be thoroughly explained.

Why have my creditors refused my IVA?

If your IVA has been refused by your creditors, it can be for several reasons. This includes:

You provided incorrect information

Because your creditors will have most likely been dealing with you for a while, they will have a good understanding of your financial circumstances. This can make it difficult for you to provide incorrect information or leave out key information without them picking up on it. When this happens, your IVA is likely to be rejected.

The total repayment amount is too low

With an IVA, your remaining debt is written off and you are declared debt-free when your five-year term ends. Whilst this may be good news for you, it may mean that your creditors are only repaid a fraction of what they are owed and are unwilling to accept the proposed terms.

However, if your creditors have tried to recover the money in the past and feel they are unlikely to be repaid through any other means, they will most likely accept your IVA.

Your IVA proposal is unrealistic

One of the most common reasons your IVA may be rejected is that the terms of your arrangement are unrealistic.

Your IP should work with you to create a payment plan that is not only affordable for you but also realistic. If your monthly payments are suspiciously high or your creditors are doubtful of you sticking to the proposed terms, they may reject it to prevent missed payments down the line.

If the terms of your arrangement are unrealistic and your IVA fails, you will still be required to repay your remaining debt through alternative, often more expensive, means.