Does setting up an IVA cost money?
In order to set up an IVA, you'll need the services of a financial professional known as an insolvency practitioner, or IP. The IP will generally be either a lawyer or an accountant.
The IP's services will cost money, though how exactly you will pay this money, and how much it will be, can vary greatly.
What am I paying for?
When an insolvency practitioner manages your IVA, they effectively take on three different but heavily related roles, and you are paying for their services in each.
As a general financial advisor, they will guide you throughout the course of your IVA to make sure you're managing your money wisely and keeping up with payments. They will also offer advice before you set up the arrangement to make sure it's the right option for you.
Once the IVA has been set up and agreed to by the courts and your creditors, your insolvency practitioner will monitor your progress. They'll be in charge of receiving and distributing your monthly payments, and dealing with any issues that arise along the way.
Having an insolvency practitioner act as a nominated representative for your case is also a legal requirement of setting up an IVA. This role involves handling all the logistics and administrative aspects of the arrangement, including formulating the actual proposal, taking it to the courts, processing your application, and arranging preliminary meetings between you and your creditors.
How do I pay my insolvency practitioner?
Both the manner and size of the payment you must give your designated IP can vary greatly.
Some IPs will require payment in the form of a lump sum before the IVA is actually set up. Others will take a portion out of your monthly payments as a fee for themselves. Each IP is different, so you won't know exactly how much you'll pay, or how you'll pay it, until you ask around.
Estimates and consultation costs
If you think an IVA is the right solution to your debt troubles, the first thing you should do is scour the market and see what the various IPs available will charge.
Once you've got in touch with an insolvency practitioner, they will want to discuss your financial situation with you and work out a basic plan before setting up your IVA. Sometimes this consultation will be free, but some IPs will charge a small fee for the service.
What if I've been referred for an IVA by the courts?
If you've been referred to a licensed insolvency practitioner following a bankruptcy order, any fees are typically paid from the assets in your bankruptcy estate rather than by you directly. The amount depends on the work involved and is approved under insolvency legislation.
If you applied for your own bankruptcy, you'll usually have paid a £680 application fee, and the Official Receiver's administration fee is £2,390. Where bankruptcy follows a creditor's petition instead, this fee is £3,300. These are statutory fees recovered from the bankruptcy estate, not additional upfront charges.
Setting up an IVA in 4 steps
If you want to set up an individual voluntary arrangement, there are certain steps you must take. Following these correctly will help you work out whether an IVA is genuinely the right option for you, and if it is, allow you to lengthen your loan's term and lower your monthly repayments.
Things to consider before you set up an IVA
Before committing to an IVA, it's worth thinking carefully about whether it's the right option for you. When you first meet with an insolvency practitioner, ask about possible debt management alternatives that might suit your individual circumstances better, and find out what risks and pitfalls are associated with organising an IVA. It's also worth checking your employment contract, since some employers don't permit staff to take out IVAs.
Step 1: Interim orders
If your lenders may be preparing to take legal action against you, it's worth considering an interim order. This can be a useful tool for stopping your creditors pursuing you through the courts in the short term. Your insolvency practitioner may suggest applying for one immediately, in which case you'll need to decide whether you're eligible.
Alternatively, your insolvency practitioner may go directly to the courts and ask them to adjourn any action against you until the outcome of your IVA application is known.
Step 2: Financial evaluation
Once you're protected from legal action by your creditors, you'll need to go through your entire financial situation with your insolvency practitioner. They'll ask for a comprehensive list of your financial documentation, including bank statements, pay cheque information, and details of all your existing loans. This lets them work out exactly how much financial difficulty you're in.
You should also put together information about your expenses, including rent, energy bills, and travel costs. This helps establish how much disposable income you may be able to put towards your IVA payments.
Step 3: Formulating a proposal
Once your entire financial situation has been reviewed, it's time to start working on a proposal to pitch to your creditors and the courts. This proposal will ask for an extension to your loan term and a reduction in your monthly repayments.
Your insolvency practitioner will also compile a report for the courts describing their view on whether your IVA should be accepted, including your financial information such as salary and assets. They'll outline why they believe an IVA is more appropriate to your situation, and more appealing to your creditors, than declaring you bankrupt.
Step 4: Pitching to your creditors
Once the above steps are complete, you'll propose your plan to the lenders you owe money to. All your creditors attend the same pitch, alongside your insolvency practitioner, and it's advisable that you attend too and make the case for yourself.
Your creditors will then vote on whether to accept your proposal. You need 75% support from your creditors for it to be accepted. If you achieve this, your IVA starts immediately, and all your lenders are bound to its terms and conditions.