Where there’s business, there’s debt. Although it’s not as common for smaller businesses to face dire financial difficulties, it can be difficult for the person who’s liable for the business’s debt if it begins struggling.

If the problems don’t get resolved quickly, it’s easy for debt to build up, resulting in a risk of bankruptcy. In cases like these, an IVA is a desirable solution.

Dealing with an IVA with a creditor has enabled more people to manage their debt better and more efficiently and get back into the business.

So how does IVA work, and is it the right solution for you? Find out more information below.

What is An IVA?

An Individual Voluntary Arrangement or IVA is a deal or legal agreement between an individual and their creditors. It’s a procedure that was formally established as an alternative to bankruptcy. It’s the ideal option for people that have assets and they want to protect those assets.

The IVA highlights how a person is supposed to pay back the debt money to their creditors. They can be flexible to fit the needs and requirements of the person in debt, and they are approved by the court. Regardless of this, IVAs can also invite some risks.

How Does IVA Work

Although there is no minimum unsecured debt for somebody entering an IVA, the typical amount is £15,000 or more. For sole traders or self-employed people entering an IVA, it allows them, for the most part, to carry on trading and be self-employed, making it a much more attractive option than bankruptcy.

For an IVA, you’ll need an advisor to guide you through the process and work with the creditors on your behalf. The process works like this:

  • Assessment: The situation is firstly assessed by a licensed insolvency practitioner, which could be a lawyer or accountant, to determine if you’re eligible to enter an IVA.
  • Proposal: Once approved, the individuals who entered the IVA work out a repayment plan with their insolvency practitioner.
  • Approval: A copy of the proposal is sent to each creditor to decide whether they accept or reject it. A meeting is held, and the proposal can be questioned and modified as seen fit. If most of them accept it, the IVA will be approved and legally bound to the creditors.
  • Payments: After approval, you will begin to make the agreed-on payments. The payments are reviewed each year to determine if you can pay them or if they need to be reduced.
  • Completion: Once the agreed payments are completed, the remainder of the debt is cleared.

Who is Eligible for An IVA

Most creditors won’t accept an IVA with payments less than £100, so having some spare income every month is essential. There are also other criteria that need to be met:

  • The level of debt must be £10,000 or higher. If your debt is lower than that, the fees may be higher, so a Debt Relief Order (DRO) is a better option. For that, you should compare debt relief companies first.
  • You must have at least two separate creditors.
  • You don’t want to deal with the creditors directly.

What Happens After An IVA

An IVA usually lasts 5 to 6 years, but the periods can vary, and it ends when all the debt is settled. After it ends, the insolvency practitioner will issue a completion certificate and ensure that your IVA record is removed from the insolvency register.