What are the Criteria Required to Accept an IVA?

The majority of IVAs are made up mostly of consumer credit debts, that is to say credit cards, personal loans and store cards. All of these financial products are supplied by a relatively small number of lending institutions who have started to standardise around what criteria they use for voting. In addition these lending institutions tend not to vote themselves, but instead are represented by an accountancy firm. Hence, the majority of creditors are actually represented by one of three accountancy firms - PwC, KPMG or Grant Thornton. This brings even more standardisation to the voting behaviour.

The following are some guidelines as to what tend to be acceptable.

Resident in England, Wales or Northern Ireland

IVAs are not available to those residing in Scotland or outside of the UK. In Scotland there is a similar mechanism called as Standard Trust Deed.

IVAs however can be available to residents of England, Wales and Northern Ireland who are currently living or working abroad.

The Debtor Should Be Insolvent

Generally to debtor must be unable to keep up their agreed level of payments on a debt such as a credit card or loan. For example and IVA should not be used as a mechanism to avoid paying back debts in full.

Debts Should Be Over £15,000

There is significant amount of work that needs to go into setting up an IVA and supervising it for up to five years. As such it does not tend to be worth it to use an IVA for smaller debts. It is currently recognised that there is a requirement for the equivalent of an IVA for smaller debts - The Insolvency Service have put forward a proposal for an SIVA (Simple IVA) however this may not be in place until the end of 2006.

Minimum Dividend of 30%

The creditors do not tend to accept an IVA which gets them back less than 30% of what they are owed. In exceptional circumstances they accept as little as 25%. For more information about the minimum costs of an IVA see 'What Does an IVA Cost?'.

Payments into the IVA Must Be Affordable

The debtor should be able to show that the committed payments will be affordable for the required period. Equally, the creditors and the Insolvency Practitioner will also try to make sure that it will not be too difficult to make the payments. For example, the debtor should be able to show that:

They are in stable employment
They have put aside enough money for basic food and living each month
They have thought about any impending increased expenditure such as a new child

Modest and Reasonable Living Expenses

During the period of the IVA the monthly contribution is calculated by taking monthly income after tax minus living expenses such as rent, bills, transport, food, etc. As such the individual should show that they will not be spending excessively and that they will be attempting to maximise the payments into the IVA. The following are some of the more common compromises that individuals can make:

Cut down on social expenditure, alcohol and tobacco
Move to less expensive rented accommodation, or take on a lodger
Cut down on bills such as mobile phone and satellite TV

Declare and Make Payments from Significant Assets

Should the debtor own any assets which they could reasonably sell or extract money from, then they normally should include this in the proposal. The following are some of the more common contributions from assets:

Release of equity from a property. E.g. Remortgage
Take funds out of a savings account
Surrender an investment such as a private pension, shares or endowment policy
Exchange an expensive car for a cheaper model

Honest and Responsible Attitude

If the Insolvency Practitioner (IP) has any reason to believe that the debtor is being deceitful or dishonest in any way, or that the IVA is unfair to either party then they have a duty to report this to the creditors. Equally if the IP believes that the IVA may not complete properly then this will also be reported.

The five year period of IVA can be a significant undertaking. It is important that the debtor fully understands the process and is committed to completing it successfully.

Able to Show Sufficient Proof of Circumstances

The debtor's proposal for an IVA is based on information about their assets, income and monthly expenditure. The debtor will need to provide suitable evidence to support their proposal. For example:

Payslips
Recent bills
Valuation of property (if applicable)

To enquire about or apply for an Individual Voluntary Arrangement call 0800 138 5445, or complete the enquiry form.

To contact an advisor call 0800 138 5445. Alternatively complete an online enquiry form and an advisor will call you back at the time that you specify.