Individual Voluntary Arrangement (IVA)

An IVA is an alternative to bankruptcy introduced by the government as part of the Insolvency Act 1986. It enables an individual in debt (debtor) to make a proposal to the people they owe money to (creditors) to reach a settlement. Should the proposal be approved by a majority of the creditors, the IVA then stands as a contract that binds all parties and prevents any further action.

A standard IVA will offer to pay whatever is affordable monthly into a fund over a five year period, and after that the debt is cleared. This can be the case even if the creditors end up getting less than 30% of their debts repaid, and so monthly payments into an IVA can be as little as £250 per month. Payments are based on what an individual or household can actually afford and are normally over £300-400, but still tends to be significantly less than the existing minimum payments on credit cards and loans.

IVAs are becoming an increasingly popular choice for the over-indebted in the UK. Prestbury has a department that specialises in advising on, setting up and supervising IVAs and is one of the UK's leading insolvency organisations in this field.

How it Works

The IVA was designed initially to be a more convenient means for processing individual insolvency cases without incurring the excessive costs and court time involved in bankruptcy. As such there are many elements that are similar to bankruptcy, but the process is simpler and the outcome less severe.

So for example under either bankruptcy or IVA they are the same assets and income that are up for distribution to the creditors; it is just that it is the individual who proposes what will be paid into an IVA, whereas under bankruptcy the magistrate at the hearing decides what the outcome will be.

The application and set up process takes around 4-6 weeks from the point of application, including activities such as fact finding, collection of evidence, drafting the IVA proposal, reviewing and signing, sending to creditors, and voting. The most professional organisations will do the majority of the work themselves and will only require the debtors for minor activities such as providing evidence and reviewing and signing the documentation.

The resulting proposed IVA will be based on what the debtor can realistically afford to pay over a five year period. Normally it will be made up of sixty monthly payments at an agreed level, however it can also include lump sum contributions from, for example, a release of equity from a property.

The approval of an IVA is dependent on receiving a 75% majority of approving votes from the creditors. Most lenders have standard terms for what they will accept, including normally a reduction in the overall level of debt by as much as 75%. Most good insolvency practices are quite familiar with these terms.

Once approved a standard IVA will run for a five year (60 month) period. During this period payments are made on a monthly basis into a fund that the Insolvency Practitioner governs. The funds that accumulate in this account are used to pay off the creditors. This fund is also used to pay the fees of the Insolvency Practitioner.

The payments into the fund are supervised by the Insolvency Practitioner. There are normally payslip reviews approximately every quarter, and a full review of the debtors situation every twelve months.

During the period of an approved IVA the creditors are required to freeze all interest on the debts, and they are prevented from pursuing the debts and prevented from porgressing any legal action related to these debts.

At the end of the five year period, assuming that the IVA has been satisfactorily completed, all of the debts are cleared.

Why Good IVA Advice is so Important

If you are thinking about setting up an IVA (Individual Voluntary Arrangement) it's essential to get the best advice possible, and to work with an organisation that is both professional and independent.

By getting impartial IVA advice you can be sure that you have all the facts and are choosing the best debt management solution for you.

Good IVA advice is also important because signing up to an IVA can involve a commitment of up to five years, so it's important that you understand what you're getting into before you start.

Many people who contact Prestbury have considered bankruptcy or have had concerns about being made bankrupt. It is essential that these people understand clearly what the implications of bankruptcy are and what other options are available to them, such as an IVA. It is also important to understand the perspective of the lenders - often bankruptcy is not what they want either.

There are some elements of bankruptcy which may appear attractive to someone who is unable to pay off their debts. For example, it can bring a close to the situation, and monthly contributions to the bankruptcy (following the Enterprise Act 2002) can be for as little as three years, and in certain circumstances only twelve months.

Credit Card Debt

Credit card debt is affecting an increasing number of people in the UK. The widespread nature of credit card debt in the UK is not surprising given that card companies encourage people to overspend and run up debts on which they are able to charge interest.

So if you are facing huge debts that you have run up on your credit card, just remember, you are not alone.

At Prestbury we offer a free and impartial advice service to help people sort out their credit card debt. If you would like to speak to one of our debt counsellors, please call 01625 591444.

Debt Arising from Death of a Partner

Over a third of people find themselves facing debt problems following the death of a partner. This is usually because the deceased had not taken out life insurance or because of debts that had to be paid out of his or her estate.

Being confronted by debt after losing a partner is particularly difficult to cope with because on top of your financial problems you are suffering from emotional trauma.

We offer a free and confidential debt advice service to help people suffering from debt after death.

If you would like to speak to one of our specially trained Prestbury debt counsellors, please complete the application form to the left or telephone 01625 591444.

Once we have helped you to identify which debt solution would work best for you, we can also help you set it up- free of charge and without any obligation.

Inheriting Debts after Death

According to English law you cannot "inherit" a debt unless you were party to it before the death of the debtor. However you can still be affected by someone's debts after they have died.

This is because when a person dies leaving debts behind, they are recoverable from his or her estate. The estate is not divided amongst the beneficiaries of a will until all of the deceased's debts have been paid. Therefore you might find yourself in debt because all the money in your spouse's estate has to be used to settle his or her debts. In certain circumstances, you might have to negotiate with the deceased's creditors to avoid losing your home, if it forms part of the estate and could be sold to cover the debts. However, if there is not enough value in the estate to cover the deceased's debts, then you are not responsible for paying them.

If you would like to speak to one of our specially trained debt advisers about your particular situation or if you would simply like more information, please contact us by telephoning 01625 591429.

Why Debt is so Common after Divorce

With the UK divorce rate at its highest level since 1997 and 1% of the adult population getting divorced each year, the financial implications for divorced couples are far reaching.

Apart from the emotional anguish involved, divorce can often lead to unforeseen debt.

On average, couples pay about £13,000 to get divorced. This figure includes legal fees, maintenance payments and the cost of setting up new homes. This huge divorce bill can lead to debt for many separated couples.

This is shown by the fact that people who call the Prestbury debt service as a result of divorce or seperation tend to have between £15,000 and £25,000 of unsecured debt. This debt stems directly from recent divorces and the cost of setting up new homes.

Many disabled people find themselves in debt at one time or another. This is because they tend to have lower incomes than the general population, but extra costs. As a result they can be driven into debt by the need to take out loans to meet their living and medical expenses which they are often unable to repay.

According to charities for the disabled, debt arising directly out of their disability is having a significant affect on their lives. Indeed, the emotional and financial pressure of coping with disability debt has a deteriorating effect on the mental and physical health of many disabled people.

The reason for this is that many disabled people facing debt have to reduce spending related to basic needs, such as food and heating. They also have to cut back on items impacting on their quality of life, such as accessible transport and respite care. Furthermore the process of dealing with debt frequently leads to depression and anxiety amongst disabled people.

Why it's Easy to Get into Debt if you Borrow Money

In the UK hundreds of lenders compete to persuade people to borrow from them at high interest rates.

Therefore it is not surprising that debt arising from personal and secured loans, car financing and expensive mortgages is as widespread as it is.

In fact this year, the average UK household had debts of £4,092 and the majority of this stemmed directly from borrowing on these products.

How To Settle Debt from Personal & Secured Loans, Car Financing and Mortgages

Debt consolidation loans and debt management programmes are the first things that many people think of in order to settle their debt problems.

The trouble is that they can cause more problems than they solve.

Debt and ill health are inextricably linked.

On the one hand, ill health can cause debt problems. Whilst on the other hand, debt problems are a recognised contributing factor to health problems.

Ill health can create debt problems very easily. People living on tight budgets are usually very good at managing their money. However life changes like ill health which can result in the loss of employment, can tip them over the edge into debt.

This is because people suffering from ill health are often unable to work which means that they have to survive on very low incomes or on State benefits. When ill health is sudden and unexpected it can make it difficult for people to meet their financial obligations. This can create debt problems for them.

Whilst ill health can cause debt, debt can cause ill health.

According to the Citizens Advice Bureau stress, anxiety and depression are common amongst people facing serious debt problems. Physical as well as mental health can also be at risk from debt as people try to save money cutting back on food and heating.

Why it is Easy to Get into Debt When You are Out of Work

According to recent research, the main cause of debt problems is a change in circumstances rather than over spending.

In particular, losing a job is a life altering event that can make it difficult for people to meet their financial commitments, which results in them facing debt problems.

If you have recently lost your job or are out of work and supporting yourself on benefits, you are likely to be susceptible to debt.

This is because many people supplement their lifestyles by borrowing as it is so easy to get credit. Repaying these loans may be easy for them if they have work. However, if they become unemployed, meeting the repayment terms can be more difficult.

Another reason why it is easy to get into serious debt if you have lost your job is because of the temptation to borrow more money to pay off existing debts. This can end up sucking you into a downward spiral of debt and despair.

With the temptations offered by online gaming sites, it's not difficult to run up five figure gambling debts. In fact according to official statistics, the average gambling debt in the UK in 2004 was £23,676, and this figure is expected to rise year on year.

It's very easy to lose control of what you're spending and get into debt if you gamble a lot. After all, as your stake goes down it can be difficult to resist the temptation to put on another bet in the hope of making a win that will clear your previous loss. Unfortunately this can end up leading to more losses which you feel you need to claw your way back from, ultimately resulting in huge gambling debts that totally overwhelm you.

If you're at the stage where you want to take control of your gambling debts rather than allowing them to control you, then we might be able to help. Please call a Prestbury debt advisor on 01625 591444.

Making purchases from mail order catalogues can lead to debt problems if you do not keep up with your weekly payments.

Many mail order companies allow you to spread the cost of purchase by making small weekly payments over a fixed period of time. However this is an expensive way to buy on credit as the mail order companies often charge very high interest rates. This makes the costs of borrowing on mail order very high and as a result it can lead to debt problems if you do not keep up with your payment instalments.

In fact total debt resulting from mail order in the UK in 2004 was £5.26 billion which shows how easily mail order can lead to financial difficulties.

Why Debt is a Growing Problem Amongst Small Businesses and Sole Traders

Starting or running a business can expose you to debt, often for reasons outside of your control. For instance, if you are a small business or sole trader, your company can face debt problems if your customers do not pay you on time thereby affecting your cashflow and ability to pay your suppliers.

The difficulty of starting and running a business is shown by the number of UK companies facing debt problems each year.

Indeed, the number of winding up petitions (termination of a company usually owing to commercial debt) increased by 45% between 2003 and 2004.

If you are a small business or sole trader facing debt you need to address the problem carefully. The reason for this is that under UK law if a company trades whilst insolvent, the directors may be liable for wrongful trading.

It can be frustrating trying to refinance from a situation of significant borrowing. There are a number of factors that can affect whether a consolidation loan is available, and generally there are very few organisation who can effectively understand these parameters and give the most appropriate advice.

Prestbury may be able to help understand why a consolidation loan or re-mortgage was refused, and whether an alternative is more appropriate such as a Debt Management Plan or an Individual Voluntary Arrangement (IVA).

As a basic rule, if an individual is able to refinance their debt situation, they ought to and Prestbury has a number of preferred partners who may be able to arrange something. If it proves impossible to refinance then the individual is technically insolvent, and they need to look for other types of solution in the form of a Debt Management Plan, IVA or even Bankruptcy.

Many people come to Prestbury when they realise that they are struggling to keep up payments on their credit cards, store cards and personal loans. It is often the case that these monthly payments together add up to several hundred pounds.

Due to the proliferation of available finance such as further credit cards and personal loans, it is often the case that an individual will first try to address this problem by making monthly payments on one loan using another loan or credit card - however this doesn't tend to solve the problem. This is practice is known as rotating finance, or more colloquially as 'robbing Peter to pay Paul'.

In these situations it is important to act quickly to get advice as to how to stop the situation from getting worse. The first thing to do is to run through a simple budgeting exercise with one of the Prestbury debt counselors to find out the following information:

• List of debts, amounts and to whom
• Details of any property, mortgage and further borrowing
• Monthly income, after tax
• Monthly expenditure, the basic costs of living

With this information it is possible to make a recommendation on what options are available, and the various pros and cons of each. This is also an opportunity to ask any questions about what is being recommended, how it works, and what other implications there are. There tend to be a number of alternatives including consolidation, debt management plans, Individual Voluntary Arrangements, and even Bankruptcy.

As more and more people in the UK are struggling to keep up with the monthly payments on credit cards and loans, the lenders are trying to do whatever they can to recover what they are owed.

It is important to understand why this chasing is happening and how it works. Prestbury can also recommend a number of alternative solutions should it not be possible to comply with their requirements.

There has been a huge increase in debt collection and recovery activity in the UK over the last few years, and the collection departments and organisations have become more advanced, intelligent and more efficient. From the perspective of a lender, they are competing to make sure they are paid off first each month before other lenders, and they will use a wide variety of techniques and strategies to make this happen.

For example, for payments up to thirty days late there will be a series of reminder letters and phone calls. If this is not successful they may start to take a more demanding tone in both written correspondence and in the chasing phone calls. Should this still not prove effective, they may suggest blacklisting, bankruptcy or other legal action.

Frequently now if there is a group of individuals who are not paying, the lender will transfer these debts over to an external organisation who specialise in debt collection. These external organisations are rewarded for collecting as much of the debt back as soon as possible - and hence the experience can be quite intense for the person who owes the money (debtor).