The intention of these guides is to supply easy and clear-cut answers to queries that individuals would like to raise in relation to IVAs and indebtedness in general but may refrain from doing so for all sorts of reasons. Let’s begin by looking at a situation when a person is going to get married but is worried that their fiancé might be insolvent and that their insolvent fiancé’s lenders could seize their funds following the nuptials. While love may be blind, it would be normal for couples to reveal to each other the state of their finances before getting married or even prior to starting to co-habit. This is prudent as failure to disclose personal financial issues before getting down to take up residence with each other might lead to a failure of trust afterwards in the marriage when one person turns out to be insolvent and their money troubles come to the attention of the other solvent spouse.
Yet even when there is no disclosure before co-habitation, the solvent spouse can take measures to shield their assets and earnings and should have absolutely nothing to be concerned about on a legal or moral basis from their insolvent partner’s lenders. The insolvent spouse can consider different debt relief solutions without compromising the money affairs of their solvent partner. Such solutions might include entering into an IVA or even petitioning for bankruptcy. The solvent partner may choose to help their partner on a financial basis in such a solution but is not required to do so. Each party should seek the advice of an insolvency practitioner and obtain independent legal advice before going forward with an insolvency solution.
People generally would like to know how long an IVA will last before they commit to going down that option. The time period of an IVA really depends on the debtor’s circumstances. The four key elements are the debtor’s assets, debts, income and expenditure. Needless to say the attitude of creditors is crucial and this is expressed at the meeting of creditors which comes before the start of the IVA. In practice the debtor’s IVA offer spells out the suggested time-span and while the majority of IVAs have a scheduled term of five years from the date of commencement the time-span can be as short as a few months or as long as seven years. The shorter timeframe IVAs are generally based on what is known as a ‘one-off’ proposition, where the primary contribution to be made by the person in debt is a lump sum. In such instances the lump sum may for instance come from the proceeds of the sale of property, or from the release of equity by the remortgage of property or be money advanced by the debtor’s husband or wife or by other members of the debtor’s extended family. If the debtor has ordinary disposable income as well as assets the IVA may well be a combination of a lump sum and regular monthly donations from income and in this type of instance the duration can be five years or longer. However the accessibility to the lump sum could be reliant on the debtor’s capacity to recompense the provider of the lump sum (family or re-mortgage provider) out of income and in many cases the debtor’s disposable earnings could well be largely committed for that purpose. If that is the situation, the time period of the IVA could be pretty limited.
Two other factors affect the duration of the IVA. Creditors can, at the meeting of creditors, seek an extension to the proposed length of time so as to enhance the dividend or to deal with the potential equity which may develop in the debtor’s property over the usual five years time period of the IVA. The second factor is that the debtor’s circumstances may change for the worse during the life of the IVA and he or she can no longer afford to pay the monthly contributions which were promised in the initial IVA proposal and which were agreed to at the meeting of creditors. One solution to this issue is to lower the monthly payments and to increase the number of monthly payments to be made in order to reach the dividend originally offered. The system to accomplish this is for the supervisor of the IVA to call a ‘variation meeting’ of creditors to agree the reduced payments and increased duration. In general IVAs last five years with a small percentage having a much shorter time period of as little as six months and an even smaller number lasting six or seven years.
The cost of an IVA is a problem of concern to anyone contemplating going down that route, particularly as they are already suffering from money difficulties and can normally ill-afford extra outlay of money. When they hire the services of an IVA firm, should they make or have to make pre-IVA payments to that provider? This is a hot topic and it is a subject of concern for the OFT. The judgment of reputable firms of IVA providers is that pre-payments are not on their own a major issue providing there is a known and agreed procedure whereby such pre-payments are reinstated to the borrower should the individual make the decision to withdraw their application for an IVA or in the situation that the IVA proposal is refused at the meeting of creditors. The debtor’s natural hope is that such a pre-payment can become the first monthly contribution to the IVA so as, if the offer was for sixty monthly contributions in total, there would be fifty nine further contributions to be brought in. This is a matter upon which IVA companies have to be crystal clear when working with the borrower. Ideally, the IVA offer itself must divulge whether such pre-payments have actually been made and the entire amount paid prior to the meeting of creditors. Still, creditors might in their wisdom decide that these kinds of pre-payments must be on top of the sixty proposed payments and may modify the Individual Voluntary Arrangement in that matter. Whilst the debtor could possibly feel aggrieved, lenders take the view that the IVA clock does not start ticking before the IVA offer is authorized at the meeting of creditors. Lenders feel that if the debtor was able to lodge monies with the nominee leading up to this point, then such funds ought to go towards improving the dividend for their gain. Here is the text of a typical modification to IVAs made by lenders at the meeting of creditors regarding payments made to the nominee pre IVA:’ the balance of any payments made to the nominee or any third parties in relation to the original consultation or preparation of these proposals, less the fee agreed by the debtor, will immediately be paid into the arrangement for the benefit of unsecured creditors. Any such sums are to be paid in addition to the contributions offered in the original proposal.’
Why would a borrower trust in the advice of an Insolvency Practitioner (IP) and what credentials does an IP require? To become certified as an IP in the UK, one has to have a specified minimum number of hours of experience of operating in an insolvency business, currently approximately 600 and also to have passed the Joint Insolvency Examination Board (JIEB) examinations. Virtually all IPs would also be accredited accountants and be paid members of a relevant recognized professional body (RPBs). An IP’s support team would usually include qualified accountants as well as people with supplementary credentials in insolvency such as the Certificate of Proficiency in Insolvency (CPI). Every business which offers insolvency solutions using the services of such specialists and supporting debt advisors needs to have a consumer credit license. The R3 internet site can provide information about appropriate insolvency credentials in Great Britain. Surprisingly, there is no insolvency certification comparable to the JIEB in the Republic of Ireland nor is there the requirement for a debt adviser there to hold a consumer credit license. It is envisioned that new laws recommended by the Law Reform Commission final report on Personal Debt Management and Debt Enforcement, which was published in December 2010, will be put into law in Ireland in the next year. It is expected to deal with the need for insolvency certification and to apply a regulatory and accreditation regime akin to that presently in place in the United Kingdom.