Anybody can present plans to their creditors for an Individual Voluntary Arrangement (IVA) as long as they really are insolvent and providing they’ve got either property or regular source of income or a mix of both which they will be able to provide their IVA fund for the advantage of their creditors. Having a house or indeed another property say for example a motor vehicle or a boat is not a essential precondition however in the absence of this type of resource the insolvent debtor has to have a regular stream of earnings which is enough to pay for the debtor’s living expenses and also of any dependents with sufficient cash remaining to repay an acceptable amount of money to creditors. Let’s look into the ‘no assets’ condition first.
Disposable income is what we call money left over after the debtor has paid for all fair living costs. The debtor doesn’t have to be in paid employment to get a regular earnings. The total amount of disposable earnings the borrower gets will depend on completely on his or her situation. Income comprises take home pay from the debtor’s job (i.e. net pay after tax, national insurance contributions, obligatory pension contributions and income payments orders are subtracted), any benefits received (which include disability benefits or social welfare benefits), pensions, tax credits, profits, child benefit, child maintenance payments (from an estranged spouse or other half), rental income (from a lodger, for example) and so on. Realistic living costs will for example comprise rent or mortgage, council tax, utilities such as water, home heating oil, solid fuels, gas and electrical power, food, housekeeping, telephone and mobile phone, Television & internet, life insurance, home insurance, motor vehicle running expenses (HP, fuel, parking, vehicle insurance, road tax, maintenance and servicing), clothes and shoes, optical dental and health related needs and all normal living costs borne in supporting a family.
Clearly if fair living expenses expend all or most of a debtor’s income, then there is simply no disposable income and no funds there to offer to creditors in an IVA. Then again, if there is a fair quantity of disposable income and outstanding debts are not excessive, lenders can hope to be paid back a fair dividend in an IVA. That the borrower is not a property owner should not and typically won’t have any impact on the outlook of creditors as they look at whether to agree with the IVA offer or perhaps to reject it. If the debtor were to be made bankrupt, lenders would certainly get a dramatically reduced dividend and in almost all bankruptcy cases lenders get no dividend at all. In the event the insolvent borrower doesn’t have property bankruptcy might be a considerably more attractive solution as compared with an IVA and he or she should look into the advantages and downsides of both remedies before settling on a course of action.
Creditors have stated what they consider to be reasonable living expenses for debtors proposing an Individual voluntary arrangement, whether or not they are single, married or co-habiting, with or without children. They provide guidelines for household spending and they count on borrowers to conform to these rules of thumb. If a borrower has uncommon or extraordinary expenses, lenders expect to get engaging reasons for approving such costs in an IVA. For instance, because of a critical medical condition, a borrower or a dependent could possibly have exact (and costly) dietary wants. There isn’t any adequate explanation for what lenders deem a decent dividend to be. It actually will depend on the quantity of the liabilities as well as on the debtor’s disposable income. IVAs are best suited for people with unsecured liabilities totaling greater than £15,000. It would be difficult but not impossible to get the agreement of lenders for an IVA proposal if the debtor’s regular monthly disposable income was under £200.
Though there is no least dividend demanded by law for an IVA to be offered, creditors today have great problems in agreeing to IVAs where the anticipated dividend is lower than 25p in the £, though in exceptional instances they might settle for a lower dividend than that. Some lenders put their minimum adequate dividend a lot higher, perhaps at least 40p in the £. A few creditors have a policy of rejecting all IVAs with which they are presented out of hand and without the need for justification. Even though this would seem unjust to the insolvent borrower, thankfully such creditors are in a minority and except for when they hold in excess of 25% of the liabilities, they can be outvoted by the other lenders who may be glad to agree to the IVA offer. Each case is assessed on its own merits. Not less than 75% of voting creditors are required to consent to the IVA proposal for it to be accepted. Lenders take many factors into consideration in making their final decision if they should accept or reject. If you don’t have a home or any other resource and you are insolvent, it should not prevent you from offering an Individual voluntary arrangement to your creditors and it should not be a obstacle to their approval of your Individual voluntary arrangement.
Now, let’s consider the ‘no income’ state of affairs. Contrary to popular belief, in specified circumstances an insolvent borrower can end up in an Individual Voluntary Arrangement (IVA), even though disposable income is actually zero. In today’s slump a lot of people have lost their jobs and people lucky enough to get a new job might find that their new wage is substantially decreased from what they could actually earn before.
Take a person that is in good employment, earning a decent salary and having the benefit of a solid and yet modest way of living. There is no issue making payment on the home loan or the car HP. There is certainly a sufficient amount of funds left over after usual cost of living of food, drink, clothing, utilities and basic living costs are dealt with to service credit card accounts, a few store-cards, some unsecured loans, and to maintain bank account borrowing below approved credit limits. There may be sufficient cash remaining to enjoy one nice holiday break annually and to make Christmas time and birthday celebrations enjoyable for family members and particularly for the children. Spouse or partner is also working and everything looks positive in the garden. Unsecured liabilities add up to let’s say £45,000 composed of credit cards, loans and bank account borrowing. Savings total let’s say a couple of thousand pounds (for a rainy day) and it seems that equity in the family home mostly covers the unsecured financial obligations (at least in theory).
Abruptly work ends and redundancy becomes the lot of the unlucky debtor. After working through the duration of statutory notice, the debtor walks away with a pretty little redundancy lump sum payment – let us say £20,000. The debtor is fortunate enough to attain a new job fairly rapidly yet is now getting a significantly diminished wage. Sadly the debtor’s partner is likewise affected by the economic downturn and is made to consent to reduced working hours. The couple writes up a new family income and expenditure statement, a household budget. Everyone is determined to tighten their belts and there is some optimism that the (moderate) standards of living earlier experienced could be preserved.
The household financial budget includes maintaining payments on the mortgage and the car HP and covers all regular living expenses. However, there is minimal or no disposable earnings available to service the unsecured liabilities. Even making minimum contractual payments on an ongoing basis is hopeless. The redundancy lump sum will quickly get whittled away if it is utilized to service credit card accounts, store-cards, unsecured loans and bank account borrowing. Additional bad news is revealed when it turns out that there is hardly any or no value in the family home mainly because of the overall crash in home values during the economic downturn. Even if a re-mortgage could be acquired it would be restricted to a borrowing arrangement to worth ratio of as low as 70%. The decrease in salary makes re-mortgaging seemingly impossible whatever the case. The annual family holiday break feels like a long time away. Christmas and birthday celebrations will develop into periods of anxiety and unsatisfied expectations. Obtaining virtually any fresh credit is out of the question – it would only make a bad scenario more serious.
Even so, all is not lost if the borrower acts speedily while the redundancy lump sum and financial savings remain largely still in effect. Creditors could quite possibly take the offer of a lump sum payment in an IVA. The case for their approval of a properly put together IVA proposal is potent. No expensive standard of living. No value in the property. No likelihood of a yield for creditors in the case of the borrower being made bankrupt. It would make absolute good sense for creditors to accept a lump sum settlement in an IVA. Although the family standard of living would likely diminish a bit, the borrower would be debt free and would not lose the family home. The debtor’s credit ranking would be impacted for six years however borrowing wasn’t exactly on the debtor’s agenda for the foreseeable future at any rate. So, just how do you set about entering into an IVA with one’s creditors?
In the event that you find yourself in circumstances just like in the example given above, an effective original course of action will be to consult with a professional Insolvency Practitioner, referred to as an IP. Your position will be addressed confidentially and your IP will be able to counsel you not just in regards to the merits of an Individual voluntary arrangement but additionally on all of the other available options for you and your family members. Initial assistance should cost you absolutely nothing.