What are the Criteria Required to Accept an IVA?
While there are practical minimum threshold values for an IVA, creditors are also looking for the applicant to demonstrate their best attempt to repay as much of their debt as is reasonably possible. Here we outline the elements that contribute to a successful IVA proposal.
The following is based on the criteria that tend to be used:
Residents in England, Wales or Northern Ireland:
IVAs are available to residents of England, Wales and Northern Ireland but not available to Scottish residents or people living outside of the UK. In Scotland, however, there is a process similar to an IVA known as the Trust Deed.
Debt levels and Number Of Creditors
Applicants need to owe more than £12,000 to creditors (minimum three lines of credit from two or more creditors) and be able to afford at least £150 per month towards their debts in order to potentially qualify for an IVA. Fulfilling these criteria does not necessarily guarantee acceptance.
Minimum dividend
Your creditors will not usually accept an IVA which yields less than 25% of what is owed. The norm is in the region of 40%.
Payments must be affordable:
You must be able to show that the IVA payments you have committed to making are affordable. It is the Insolvency Practitioner’s responsibility to make sure that these payments are reasonable and affordable.
You must demonstrate that you have stable employment with regular income and are able to afford to make priority payments such as mortgage or rent, as well as being able to afford necessities like food and living expenses every month. The Insolvency advisor will undertake a detailed income and expenditure Factfind to show this.
Essential living expenditures:
For the duration of the IVA your monthly contribution is calculated by taking your monthly income after tax minus essential living expenses like rent, bills, transport and food. You should show that you will not be spending excessively and that you can afford to make the payments to the IVA.
Here is some basic money saving tips that a debtor can make:
- Cut down on social expenses like restaurants, alcohol and tobacco.
- Move to a cheaper apartment or get a lodger.
- Cut down on unnecessary bills like mobile phones and satellite TV.
If you own any non essential assets which you do not need, e.g. you may have inherited an original painting, you would normally be expected to include this in your proposal. This means you would commit to attempt to sell the asset to raise funds to pay to your creditors as part of your IVA.
Be responsible:
Before approving a debtor’s IVA application, the Insolvency Practitioner (IP) will want assurances that the debtor understands the magnitude of making a five year commitment.
Show sufficient proof:
Your IVA proposal is based on the information that you provide to us about your assets, credit commitments, income and monthly expenditure. You will need to provide evidence of this to support your proposal, such as payslips, recent bills and possibly even a property valuation.
Entering an IVA could help you to solve your debt problems, but is not always the best solution.
Speak to a professional at Harrington Brooks about applying for an IVA and whether it is the right solution for you.