Individual Voluntary Arrangement (IVA) is a debt solution that has gained popularity among individuals facing financial challenges. It is often touted as a viable alternative to bankruptcy, offering a structured repayment plan that allows individuals to manage their debts more effectively. However, a common question that arises is whether an IVA is a government-approved scheme. In this article, we’ll delve into the details to provide clarity on the status of IVAs and their approval by government authorities.
What is an IVA? An Individual Voluntary Arrangement is a formal and legally binding agreement between an individual and their creditors. It allows individuals to repay their debts over a fixed period, usually five to six years, based on what they can reasonably afford. The arrangement is facilitated by a licensed insolvency practitioner who acts as a supervisor, overseeing the implementation of the IVA and ensuring compliance with its terms.
Government Oversight: While IVAs are not directly approved by the government, they are regulated by existing insolvency laws in the United Kingdom. The government sets the legal framework within which IVAs operate, ensuring that they adhere to specific guidelines and standards. The Insolvency Act 1986 and subsequent amendments outline the legal basis for IVAs, offering protection to both debtors and creditors involved in the arrangement.
Licensed Insolvency Practitioners: One of the critical components of an IVA is the involvement of a licensed insolvency practitioner (IP). These professionals are regulated by recognized professional bodies, such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Insolvency Practitioners Association (IPA). Government-approved regulatory bodies oversee these organisations, ensuring that IPs adhere to strict ethical and professional standards.
Approval Process: To initiate an IVA, a licensed insolvency practitioner assesses the individual’s financial situation and proposes a repayment plan to creditors. Creditors then vote on whether to accept or reject the proposed arrangement. For an IVA to be approved, it requires the support of a significant majority of creditors, representing at least 75% of the total debt value. Once approved, the IVA becomes legally binding on all parties involved.
Benefits of an IVA: The government’s indirect approval of IVAs lies in the recognition of their benefits in helping individuals overcome financial difficulties without resorting to bankruptcy. IVAs offer several advantages, including:
- Debt Repayment: Individuals can repay a portion of their debts through affordable monthly payments.
- Legal Protection: Once approved, creditors are bound by the terms of the IVA, preventing legal actions and harassment against the debtor.
- Asset Preservation: Unlike bankruptcy, which may lead to the sale of assets, an IVA allows individuals to retain ownership of their assets, including their home.
Conclusion: While an IVA itself is not a government-approved scheme, it operates within the legal framework established by the government. The regulatory oversight provided by licensed insolvency practitioners and adherence to insolvency laws ensure that IVAs are legitimate and effective solutions for individuals facing financial challenges. Before considering an IVA, it is essential to seek professional advice and thoroughly understand the implications and obligations associated with this debt management option.