On the whole articles you will read pertaining to solutions for personal financial troubles are inclined to pinpoint the merits, advantages, positive aspects, upsides or whatever constructive hype you wish to place on it, of the selected treatment being explained. That's quite understandable in these recessionary days when we can do with a little bit of good news, even though it's of the 'medicine is good for you - regardless of how it tastes' variety.With that frame of mind we will take a look at an Individual Voluntary Arrangement (IVA) sensibly taking on board its positive characteristics but not overlooking the sour taste that some of its shortcomings leaves.
For anybody who proposes an IVA to their creditors, it is an occasion of great satisfaction and sometimes unbridled joy on the day of the Meeting of Creditors (MOC) when they learn that their IVA has been approved. They can now look forward to being debt free in a reasonable period of time. No more debt collectors, no more phone calls from creditors, no more bills, invoices or statements of account and no more threats of legal action. Visits from bailiffs will be a thing of the past. So what are the pitfalls of an IVA and what can go wrong?
Once the understandable personal excitement which came after the MOC has died down, the supervisor of the IVA will spell out specifically what the person in debt must do to abide by the terms and conditions of the IVA. This incorporates compliance with creditor modifications previously accepted. These modifications often call for an increase in the debtor's contributions to the IVA. The first and probably the most major pitfall may materialize in the event the debtor suffers a substantial lowering of earnings and is for that reason not able to make the contracted contributions to the IVA.
This sort of earnings reduction could be as a result of the person in debt being laid off from their employment within a year of the beginning of the IVA and as many as 10% of debtors going into an IVA can be up against this issue. Some other people may perhaps be facing short time employment or have to take pay-cuts. The current recession has exacerbated this issue with certain firms pursuing 'voluntary' pay cutbacks from their workers. This type of decline in salary is not the debtor's fault nor is it the fault of creditors. Nevertheless, creditors authorized the IVA and may well have adjusted its terms and conditions, such as looking for a minimum dividend to be paid out. Defaulting on as few as two or three monthly contributions might be considered as a failure to abide by the terms and conditions of the IVA. When that occurs, the supervisor may send a Certificate of non-Compliance to the debtor and might call a General Meeting of Creditors to decide upon the next plan of action. Although the inability to make routine contributions to the IVA is probably the most prevalent issue of non-compliance there are others.
The debtor and his or her supervisor need to deal with such examples of non-compliance and this is normally done by spelling out four options for lenders at the General Meeting of Creditors. Creditors may approve one of these choices or pick an option of their own with the authorization of over 50% of voting creditors necessary to reach a decision. The four options are:
To petition for the bankruptcy of the debtor in the event the supervisor has been required to hold on to funds for this purpose; to terminate the IVA and hand out any funds available among the creditors; to alter the arrangement, authorizing the borrower to present a variation of the IVA to lenders and finally to do nothing in the meanwhile. Although the last alternative is an improbable outcome, it is one that might happen in particular scenarios. Creditors may then again opt to authorize the supervisor to allow the person in debt have a payment breather for say six months, to enable monthly contributions to restart or they may choose what other steps that need to be taken.
Besides not being able to make monthly contributions as needed, the borrower might possibly have to deal with several other pitfalls. If for example, the borrower were to sustain a new debt after the IVA was accepted without the permission of the supervisor, the new creditor would not be bound by the terms and conditions of the IVA which would inevitably fail. The new lender could petition for the debtor's bankruptcy, if a debt exceeding 750 were to be left unpaid.
Issues for self-employed debtors include the failure to make returns to HMR&C within the accepted timescale.Considering that this failure is self-inflicted, HMR&C commonly include a modification to the proposal of a self-employed debtor, requiring that the supervisor terminate the IVA for a non-compliance of this type.
If the debtor fails to disclose in his or her IVA proposal, that they own a significant asset or fail to disclose post IVA approval that they have received a windfall, then the IVA will almost certainly be terminated and be deemed to have failed.
Most debtors now address any equity which they may have in their property in their IVA proposal. If they fail to address such equity, creditors will generally modify the proposal requiring them to so do. Typically debtors are required to re-mortgage their property at 85% loan to value in the fourth or fifth year of their IVA and to contribute a lump sum from the released equity to their arrangement. However, it may become impossible for the debtor to make the expected equity contribution when it falls due. With the slump in property prices debtors may find that their property is in negative equity and even if some equity remains in the property, they may be unable to procure a mortgage due to the credit crunch. In such circumstances, the debtor may offer a variation proposal to creditors. Such a variation proposal might be to extend the duration of the IVA by up to one year and to make additional monthly contributions for that period. The purpose of such additional payments would be to offset the reduction in the dividend due to the lack of realisable equity in the property. At least 75% of voting creditors must agree to such a variation proposal in order for it to be approved.
There are lots of these kinds of changes of circumstances which may transpire after IVA approval and which might significantly affect the debtor's ability to completely comply with the terms of the IVA. For instance, the debtor or his or her partner or a member of his or her family may contract a severe ailment or suffer an injury and as a consequence reducing the family income substantially. Should such an regrettable event take place, the borrower ought to notify the supervisor of the IVA immediately so that all practical actions can be applied rapidly to identify a solution and to obtain the creditors' agreement to vary the IVA as required.
For anybody who proposes an IVA to their creditors, it is an occasion of great satisfaction and sometimes unbridled joy on the day of the Meeting of Creditors (MOC) when they learn that their IVA has been approved. They can now look forward to being debt free in a reasonable period of time. No more debt collectors, no more phone calls from creditors, no more bills, invoices or statements of account and no more threats of legal action. Visits from bailiffs will be a thing of the past. So what are the pitfalls of an IVA and what can go wrong?
Once the understandable personal excitement which came after the MOC has died down, the supervisor of the IVA will spell out specifically what the person in debt must do to abide by the terms and conditions of the IVA. This incorporates compliance with creditor modifications previously accepted. These modifications often call for an increase in the debtor's contributions to the IVA. The first and probably the most major pitfall may materialize in the event the debtor suffers a substantial lowering of earnings and is for that reason not able to make the contracted contributions to the IVA.
This sort of earnings reduction could be as a result of the person in debt being laid off from their employment within a year of the beginning of the IVA and as many as 10% of debtors going into an IVA can be up against this issue. Some other people may perhaps be facing short time employment or have to take pay-cuts. The current recession has exacerbated this issue with certain firms pursuing 'voluntary' pay cutbacks from their workers. This type of decline in salary is not the debtor's fault nor is it the fault of creditors. Nevertheless, creditors authorized the IVA and may well have adjusted its terms and conditions, such as looking for a minimum dividend to be paid out. Defaulting on as few as two or three monthly contributions might be considered as a failure to abide by the terms and conditions of the IVA. When that occurs, the supervisor may send a Certificate of non-Compliance to the debtor and might call a General Meeting of Creditors to decide upon the next plan of action. Although the inability to make routine contributions to the IVA is probably the most prevalent issue of non-compliance there are others.
The debtor and his or her supervisor need to deal with such examples of non-compliance and this is normally done by spelling out four options for lenders at the General Meeting of Creditors. Creditors may approve one of these choices or pick an option of their own with the authorization of over 50% of voting creditors necessary to reach a decision. The four options are:
To petition for the bankruptcy of the debtor in the event the supervisor has been required to hold on to funds for this purpose; to terminate the IVA and hand out any funds available among the creditors; to alter the arrangement, authorizing the borrower to present a variation of the IVA to lenders and finally to do nothing in the meanwhile. Although the last alternative is an improbable outcome, it is one that might happen in particular scenarios. Creditors may then again opt to authorize the supervisor to allow the person in debt have a payment breather for say six months, to enable monthly contributions to restart or they may choose what other steps that need to be taken.
Besides not being able to make monthly contributions as needed, the borrower might possibly have to deal with several other pitfalls. If for example, the borrower were to sustain a new debt after the IVA was accepted without the permission of the supervisor, the new creditor would not be bound by the terms and conditions of the IVA which would inevitably fail. The new lender could petition for the debtor's bankruptcy, if a debt exceeding 750 were to be left unpaid.
Issues for self-employed debtors include the failure to make returns to HMR&C within the accepted timescale.Considering that this failure is self-inflicted, HMR&C commonly include a modification to the proposal of a self-employed debtor, requiring that the supervisor terminate the IVA for a non-compliance of this type.
If the debtor fails to disclose in his or her IVA proposal, that they own a significant asset or fail to disclose post IVA approval that they have received a windfall, then the IVA will almost certainly be terminated and be deemed to have failed.
Most debtors now address any equity which they may have in their property in their IVA proposal. If they fail to address such equity, creditors will generally modify the proposal requiring them to so do. Typically debtors are required to re-mortgage their property at 85% loan to value in the fourth or fifth year of their IVA and to contribute a lump sum from the released equity to their arrangement. However, it may become impossible for the debtor to make the expected equity contribution when it falls due. With the slump in property prices debtors may find that their property is in negative equity and even if some equity remains in the property, they may be unable to procure a mortgage due to the credit crunch. In such circumstances, the debtor may offer a variation proposal to creditors. Such a variation proposal might be to extend the duration of the IVA by up to one year and to make additional monthly contributions for that period. The purpose of such additional payments would be to offset the reduction in the dividend due to the lack of realisable equity in the property. At least 75% of voting creditors must agree to such a variation proposal in order for it to be approved.
There are lots of these kinds of changes of circumstances which may transpire after IVA approval and which might significantly affect the debtor's ability to completely comply with the terms of the IVA. For instance, the debtor or his or her partner or a member of his or her family may contract a severe ailment or suffer an injury and as a consequence reducing the family income substantially. Should such an regrettable event take place, the borrower ought to notify the supervisor of the IVA immediately so that all practical actions can be applied rapidly to identify a solution and to obtain the creditors' agreement to vary the IVA as required.
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