Individual Voluntary Arrangement (IVA)
An IVA is an agreement between you and your creditors where you pay a fixed monthly amount towards your debts. This monthly payment is based on the surplus of your income and expenditure and so is based on what you can afford rather than what you owe. Because the IVA payments are based on what you can afford rather than what you owe, any unpaid debt is written off at the end of the IVA.
One of the major benefits of an IVA is that it is binding on all of your creditors including those that do not vote in favour of it. This is particularly useful if you have creditors who have been unwilling to agree terms with you in the past.
Finally, because your IVA is written to reflect your circumstances it can facilitate ongoing trade of your business which would not necessarily be possible if you were made bankrupt. Because of this, most people looking to continue a sole trader business are better off proposing an IVA.
An IVA is usually over a 5 year period unless the debt is paid in full sooner and the typical range of monthly payments is in the region of £150 to £500 with the costs of the IVA taken from these payments as they are made meaning there is no high up front cost.
Although the options are different, there are still a number of different solutions for dealing with sole trader and personal debts.
Like most people, you may feel like Bankruptcy is something to avoid at all costs. However, depending on your circumstances, Bankruptcy may actually be your best option. This will usually be the case if you have high debts and very few assets of any value. In this case, the amount of debt written off through the Bankruptcy is high but you lose little in asset value. Bankruptcy also only lasts 1 year so you are free to move on more quickly than if you enter into an IVA over a 5 year period.
However, if you run a business and are planning on continuing to trade there are a number of restrictions in Bankruptcy. First, in order to trade you need approval through your Trustee in Bankruptcy and cannot trade without this approval. You will also be required to report your trading performance to your Trustee regularly. Additionally, when you are bankrupt, you are not allowed more than £500 of credit which can obviously impact your ability to trade.
Because of this, an IVA is often a better option if you want to keep trading.
Debt Management is an arrangement with your creditors based on your income and expenditure much like in an IVA. However, Debt Management is not a formal legal process and so requires all of your creditors to consent. As it is not a formal legal process, Debt Management also does not allow any debt to be written off and as a result Debt Management is usually over a much longer timeframe than an IVA.
Debt Consolidation Loans
You may be able to obtain a debt consolidation loan to pay off your debts and turn these into a single manageable payment. You need to be aware that these loans are increasingly hard to obtain and are often secured on your property or need a third party guarantor so you need to think carefully about your ability to make the payments before you take out the loan.
When you get in touch with us, you will speak directly to a licensed Insolvency Practitioner from the outset. We will take the time to understand your financial position, what your future intentions are and ultimately what outcome you are hoping for.
Whether you want to propose an IVA or just want assistance in petitioning for your own bankruptcy, we are able to help you through the full process.