If you apply for an Individual Voluntary Arrangement, what are the chances your application will succeed? Could it be rejected? And if it is rejected, what happens next?
Can an IVA application be rejected?
Yes, it can. It doesn’t happen often, because any application for an IVA needs to be made through an Insolvency Practitioner (IP). IPs are professional debt managers who negotiate with creditors on your behalf. They know the requirements of a successful IVA and they know the likelihood of creditors agreeing to it. It’s far more likely you’ll be advised to take an alternative debt management route rather than applying for an IVA they know will be rejected.
You cannot apply for an IVA without going via an IP.
Why are IVAs rejected?
When you apply for an IVA your IP will put together a proposal which will detail how much you can pay each month towards your debts. Your creditors then vote to approve or reject it.
Working in favour of a ‘yes’ vote is the fact that creditors are unlikely to get much (if anything) back if you are declared bankrupt. They are likely to lose less by agreeing to the IVA. Against this is the fact that each creditor is likely to have its own guidelines which set out minimum repayment levels. They are unlikely to be able to agree to any repayments below this.
This is where the role of the IP is crucial. They have the experience to know the level at which your creditors are most likely to agree to the IVA.
Do all creditors need to agree to an IVA?
No. Providing more than 75% of them agree (that is, creditors accounting for 75% of the value of the debt, not three quarters of the number of lenders), the proposal will be approved. At that point, even the creditors who didn’t agree to it will be bound by it.
Alternatively, the creditors may approve the proposal on condition that certain changes are made to it. You have 14 days to consider these and you don’t have to agree to them, but if you don’t accept them your IVA will be rejected.
What if I can’t afford IVA repayments?
Your creditors will want to ensure that you can pay a certain amount towards your debts each month. The amount of the repayments will be far less than the cost of servicing all the individual debts – often about 60% less – but you will need to be able to keep up with the payment plan.
If you don’t have an income, or you don’t have sufficient income to make the minimum repayment, your IP is unlikely to agree to making an IVA application unless you can find some way of lowering your monthly payments to a level you can manage.
We explore alternative ways of affording an IVA here.
My IVA was rejected. Can I apply again?
Yes, although an IP is unlikely to agree to the application unless you can show any of the following:
- Errors were made in the original application
- Your income has changed
- Other circumstances have changed which mean you have other ways of reducing the debt (e.g. inheritance)
Can trust deeds be rejected?
In Scotland, you can’t apply for an IVA, but you can apply for a Scottish trust deed (also known as a protected trust deed). It operates in much the same way as an IVA (it is sometimes incorrectly called a Scottish IVA) although there are numerous differences between the two, including the criteria for rejection and what might happen after rejection.
How IVAs and trust deed rejections differ
|IVAs||Scottish Trust Deeds|
|How many creditors need to agree to the IVA?||Creditors representing 75% of the value of the debt||50% of the number of creditors or creditors representing at least one third of the total debt|
|What happens if the application is rejected?||An IVA ceases to be an option for you.||Your trust deed will not have ‘protected’ status|
|What does that mean?||You’ll need to choose an alternative debt management route||Your trust deed won’t have legal protection.|
This means that:
· Creditors can continue to pursue you for the money you owe
· Any creditors who agreed to the trust deed may accept the payment terms you offered (although they don’t have to)
· Debt charges will continue
· Interest will not be frozen
· After 4 years, only the creditors who agreed to the trust deed will release you from the debt. All other debts will continue
Is an unprotected trust deed worth it?
Often not, because it doesn’t give you the security that a protected trust deed would. If your choices are an unprotected trust deed or an alternative form of debt management/insolvency, such as a Debt Management Plan, a Debt Arrangement Scheme or bankruptcy, you may be better exploring those routes.
Are IVA’s a government backed scheme?
IVA’s were introduced in 1986 and form part of the Insolvency Act (1986) to help people who are struggling to pay their debts. Unlike debt management, they are a legislated and formal debt solution meaning that the IVA agreement is legally binding, which can help to eliminate harassment from creditors.
Will I lose my home in an IVA?
Unlike bankruptcy, you wouldn’t usually lose your home in an IVA. If you own your home and have equity you may be required to release it so the IVA company can pay your creditors (that is, the people and organisations to whom you owe money). Read more here.
Will an IVA affect my credit rating?
Your credit rating will be affected whilst on an IVA and will stay on your credit file for up to 6 years. Any debt solution will affect your credit rating, but at the same time if you’ve missed payments and defaulted then your credit file will be affected anyway, as a default also stays on your file for up to 6 years. Read more here.
Do I need to know who I owe before I apply for an IVA?
It’s not a problem if you cannot remember all the people you owe money to before you apply for an IVA. A lot of people forget as they may have been taken out a long time ago. We have systems which can find all your debtors.
How much debt can I write off with an IVA?
The amount of debt that can be written off with an IVA very much depends on personal circumstances, such as your current employment status, debt level and disposable income. The maximum is 90% of unsecured debt but the average is around 60%.
How can I apply for an IVA?
There are 4 ways to apply for an IVA. 1: Call us on 0800 193 1024. 2: Apply online here. 3: Chat with us on live chat. 4: Apply through our Facebook page. The IVA application process is very simple and can be setup in as little as 24 hours. The speed usually depends on how quickly you can get information to us.
I’m thinking about an IVA. But what happens if I have no money spare at the end of the month?
It’s still worth exploring options with a debt management professional. They may be able to help you make your budget stretch further. If not, they will be able to give you advice about which is the right debt solution tool for you. That could be an IVA (in England, Wales or NI) or a protected trust deed (in Scotland) but there are several other potential options.
What happens if my circumstances change?
Talk to your IVA insolvency practitioner. They may be able to get agreement from creditors to a temporary reduction in payments or a longer repayment period to help you over a difficult period.
Why is my bank taking money from my account to pay my debts?
Banks hold an automatic ‘right to offset’. This means that if you have money in a bank account and unpaid loans or credit cards with the same lender, they can take the money in the account to pay off the debts. More confusingly, this can also happen when the debt is owed to a company also owned by your bank.
So, for example, if your bank account is with HSBC and you have an unpaid credit card with M&S Bank or First Direct, a right to offset could be used to pay those debts, because HSBC owns all of them.
You can find more about which banks are subsidiaries of other banks here.
In an IVA, and to avoid the right to offset, you may be required to switch bank accounts.
Will an IVA affect my credit rating?
Yes. The record of the IVA will remain on your credit file for six years from the date the IVA begins.
Will I still be able to get credit with an IVA?
Getting credit is harder with an IVA. If you want more than £500 of credit you’ll need permission from your insolvency practitioner in most circumstances. The chances of credit being approved are less, and any credit you are able to secure is likely to cost more.
Bear in mind, however, that an IVA (and a Scottish trust deed) is designed to help you escape debt, not find new sources of it.
If I choose an IVA, do I have to deal with my creditors directly?
No. In fact, you can’t set up an IVA without an insolvency practitioner who will handle all the to-ing and fro-ing between creditors. Assuming you qualify in other ways (see above) that makes an IVA ideal if you’d rather not speak to your creditors.
The best way to find the best route for you is to contact us.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here