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 what the debtor must do to abide by the terms and conditions of the IVA. This incorporates compliance with lender modifications already accepted. These modifications frequently demand a rise in the debtor's contributions to the IVA. The first and probably the most critical pitfall may come about if ever the borrower suffers an exceptional decrease of income and is for this reason not able to make the agreed contributions to the IVA.
Such an income reduction may be as a result of the debtor losing their employment within a year of the start of the IVA and as many as 10% may be faced with this problem. Others may be faced with short time working or have to take pay-cuts. The current recession has exacerbated this issue with some employers seeking 'voluntary' pay cuts from their staff. Such a reduction in income is not the debtor's fault nor is it the fault of creditors. Nevertheless, creditors approved the IVA and may have modified its terms and conditions, such as requiring a minimum dividend to be paid. Defaulting on as few as two or three monthly contributions may be deemed as a failure to comply with the terms and conditions of the IVA. When that happens, the supervisor may issue a Certificate of non-Compliance to the debtor and may call a General Meeting of Creditors to determine the next course of action. While failure to make regular contributions to the IVA is probably the most frequent 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.
Downfalls for self-employed debtors include things like the failure to make returns to HMR&C in the accepted timescale.As this failure is self-inflicted, HMR&C often attach a modification to the proposal of a self-employed person in debt, requiring that the supervisor terminate the IVA for a non-compliance of this kind.
When the borrower does not reveal in his or her IVA proposal, that they posses a significant asset or if they fail to make known post IVA approval that they have obtained a windfall, then the IVA will in all probability be terminated and be considered to have failed.
Nearly all borrowers now deal with any value which they may have in their property in their IVA proposal. When they fail to tackle such equity, creditors will often modify the proposal looking for them to so do. Commonly debtors will need 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. Having said that, it could become impossible for the borrower to make the envisioned equity contribution when it falls due. With the slump in property values debtors can find that their property is in adverse equity and even if some equity remains in the property, they may be unable to obtain a home loan because of the recession. In such situations, the debtor may offer a variation proposal to creditors. Such a variation proposal could possibly be to extend the duration of the IVA by up to one year and to make additional monthly contributions for that time. The aim of such further payments would be to counterbalance the reduction in the dividend because of the absence of realisable value in the property. No less than 75% of voting lenders will have to agree with this type of variation proposition for it to be accepted.
There are numerous these kinds of changes of circumstances which may develop after IVA approval and which could critically affect the debtor's capacity to entirely observe the terms of the IVA. For example, the debtor or his or her partner or a member of his or her family may contract a major illness or suffer a personal injury and as a result decreasing the household income substantially. If this sort of unfortunate situation occur, the borrower should notify the supervisor of the IVA as quickly as possible to ensure that all reasonable steps can be taken promptly to identify a cure and to attain the creditors' consent to vary the IVA accordingly.
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 what the debtor must do to abide by the terms and conditions of the IVA. This incorporates compliance with lender modifications already accepted. These modifications frequently demand a rise in the debtor's contributions to the IVA. The first and probably the most critical pitfall may come about if ever the borrower suffers an exceptional decrease of income and is for this reason not able to make the agreed contributions to the IVA.
Such an income reduction may be as a result of the debtor losing their employment within a year of the start of the IVA and as many as 10% may be faced with this problem. Others may be faced with short time working or have to take pay-cuts. The current recession has exacerbated this issue with some employers seeking 'voluntary' pay cuts from their staff. Such a reduction in income is not the debtor's fault nor is it the fault of creditors. Nevertheless, creditors approved the IVA and may have modified its terms and conditions, such as requiring a minimum dividend to be paid. Defaulting on as few as two or three monthly contributions may be deemed as a failure to comply with the terms and conditions of the IVA. When that happens, the supervisor may issue a Certificate of non-Compliance to the debtor and may call a General Meeting of Creditors to determine the next course of action. While failure to make regular contributions to the IVA is probably the most frequent 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.
Downfalls for self-employed debtors include things like the failure to make returns to HMR&C in the accepted timescale.As this failure is self-inflicted, HMR&C often attach a modification to the proposal of a self-employed person in debt, requiring that the supervisor terminate the IVA for a non-compliance of this kind.
When the borrower does not reveal in his or her IVA proposal, that they posses a significant asset or if they fail to make known post IVA approval that they have obtained a windfall, then the IVA will in all probability be terminated and be considered to have failed.
Nearly all borrowers now deal with any value which they may have in their property in their IVA proposal. When they fail to tackle such equity, creditors will often modify the proposal looking for them to so do. Commonly debtors will need 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. Having said that, it could become impossible for the borrower to make the envisioned equity contribution when it falls due. With the slump in property values debtors can find that their property is in adverse equity and even if some equity remains in the property, they may be unable to obtain a home loan because of the recession. In such situations, the debtor may offer a variation proposal to creditors. Such a variation proposal could possibly be to extend the duration of the IVA by up to one year and to make additional monthly contributions for that time. The aim of such further payments would be to counterbalance the reduction in the dividend because of the absence of realisable value in the property. No less than 75% of voting lenders will have to agree with this type of variation proposition for it to be accepted.
There are numerous these kinds of changes of circumstances which may develop after IVA approval and which could critically affect the debtor's capacity to entirely observe the terms of the IVA. For example, the debtor or his or her partner or a member of his or her family may contract a major illness or suffer a personal injury and as a result decreasing the household income substantially. If this sort of unfortunate situation occur, the borrower should notify the supervisor of the IVA as quickly as possible to ensure that all reasonable steps can be taken promptly to identify a cure and to attain the creditors' consent to vary the IVA accordingly.
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