If you are insolvent and have no assets and/or no disposable income can you still do an IVA or to put the question a little differently, is there any chance that creditors will accept your proposal for an IVA if you have no money? Incredible as it may seem, the answer is yes, provided you can ‘bring something to the table’. First, let us look at the ‘normal’ scenario in which an insolvent debtor goes forward with an IVA.
Even though insolvent, provided you have some assets or a regular income or both, then you may meet the basic criteria for offering an IVA to your creditors. You don’t have to own a home or indeed any other asset such as land or a car or a boat but in the absence of such an asset, you need to have a regular stream of income which is sufficient to cover your living expenses and those of any dependents you may have and still have enough money left over to pay a reasonable amount to your creditors. Let’s look at the ‘no assets’ scenario first.
IVA with no assets
Your disposable income
Disposable income is what we call the money you have left over when you have paid all reasonable living costs. You need not even be in paid employment to have a regular income. Income comprises of take home pay from your employment (i.e. the net pay you are left with after tax, national insurance contributions, mandatory pension contributions and income payments orders are deducted), any benefits you receive (such as disability or social welfare benefits), pensions, tax credits, dividends, child benefit, child maintenance payments (from an estranged spouse or partner for example), rental income (from a lodger, for example) and so on.
Your reasonable living expenses
Reasonable living expenses will include mortgage or rent, council tax, utilities such as water, heating oil, solid fuels, gas and electricity, food, housekeeping, telephone and mobile, TV & internet, life insurance, house insurance, vehicle running costs (HP, fuel, parking, car insurance, road tax, repairs and servicing), clothing and footwear, optical, dental and medical needs and all the normal living costs incurred in supporting both yourself and your family.
Income minus Expenses
Clearly if all or most of your income is spent on your reasonable living expenses, then there is no disposable income available to offer to your creditors in an IVA. On the other hand, if there is a reasonable amount of disposable income left over and your debts are not excessive, creditors can expect to be paid a reasonable dividend in an IVA.
The fact that you are not a homeowner will generally not have any effect on the attitude of creditors when they consider whether to accept your IVA proposal or to reject it. Remember that if you were to be made bankrupt, creditors would generally receive a much lower dividend and in many bankruptcy cases creditors receive no dividend at all. Of course, if you have no assets, bankruptcy may be a more attractive option than an IVA for you and you should consider the pros and cons of both solutions before deciding on a course of action.
Living expenses guidelines
Creditors have published guidelines indicating what they consider to be reasonable living expenses for someone proposing an IVA, whether they are single, married or co-habiting, with or without children. If you have unusual or extraordinary expenses, creditors expect to see compelling arguments for allowing such expenses in an IVA. For example, because of a severe medical condition, you or a dependent might have specific (and expensive) dietary needs. There is no satisfactory definition for what creditors deem a reasonable dividend to be. It really does depend on the total amount of your debts and on your disposable income. Generally if you are insolvent with unsecured debts in excess of £15,000 and monthly disposable income of at least £200, you are likely to meet the criteria for an IVA, provided your debts are not excessive.
Getting the IVA proposal accepted
While there is no minimum dividend required by law for an IVA to be proposed, creditors nowadays generally expect a dividend of at least 25p in the £, although in exceptional cases they may accept a much lower dividend than that but some creditors set their minimum acceptable dividend at as much as 40p in the £. A few creditors have a policy of rejecting all IVAs with which they are presented out of hand and without explanation. While this seems unfair to the insolvent debtor, thankfully such creditors are in a minority and unless they hold over 25% of the total debts, they can be outvoted by the other creditors who may be happy to accept the IVA proposal.Each case is assessed on its own merits. At least 75% of voting creditors need to accept your IVA proposal for it to be approved. Creditors take many factors into account in making their decision whether to accept or reject. If you do not own a home or any other asset and you are insolvent, it should not discourage you from offering an IVA to your creditors and it should not be a barrier to their acceptance of your IVA.
IVA with no income
Now, let’s look at the ‘no income’ scenario. Believe it or not, in certain circumstances you can do an IVA, even if your disposable income is zero. In the current recession many people have lost their jobs and those lucky enough to secure a new job may find that their new salary is substantially reduced from what they were able to earn before.
You could be in good employment, earning a good salary and enjoying a good but modest lifestyle. After paying your mortgage and car HP you have enough money left over to cover your normal living expenses of food, drink, clothing, utilities and general living expenses and to service credit card accounts, store-cards, and unsecured loans while keeping overdrafts below authorized limits. There is enough money left to have one decent annual holiday a year and to make Christmas and birthdays special for family members and especially for the children. Spouse or partner is also working and everything looks rosy in the garden. Your unsecured debts amount to let’s say £45,000 made up of credit cards, loans and overdrafts. Savings amount to let’s say a few thousand pounds (for a rainy day) and it appears that equity in the family home largely covers the unsecured debts (at least in theory).
Suddenly you are made redundant and after working through your statutory notice period, you are unemployed having been awarded a relatively small redundancy lump sum, let us say £20,000. You are lucky enough to secure a new job relatively quickly but at a much reduced salary. Unfortunately your partner is also affected by the recession and is forced to accept reduced working hours. You draw up a new household income and expenditure statement and a tight household budget. Everyone is resolved to tighten their belts and there is some optimism that the (modest) standards of living previously enjoyed can be maintained.
Your new family budget includes keeping up payments on your mortgage and car HP and covers all normal living expenses but you have little or no disposable income available to service your unsecured liabilities. Even making minimum contractual payments on an ongoing basis is impossible. The redundancy lump sum will soon get whittled away if it is used to service credit card accounts, store-cards, unsecured loans and overdrafts. Further bad news is revealed when it turns out that there is little or no equity in the family home due to the general fall in property values during the recession. Even if you could obtain a remortgage, it would likely be limited to a loan to value ratio of 70% or less. The reduction in income makes re-mortgaging impossible in any case. The annual family holiday seems like a lifetime away. Christmas and birthdays are times of stress and unfulfilled expectations. Getting any new credit is out of the question – it would only make a bad situation worse.
Lump sum IVA
However, all is not lost if you move quickly while your redundancy lump sum and savings are still largely intact. Creditors might accept the offer of a lump sum IVA. The case for their acceptance of a well constructed IVA proposal is powerful. No extravagant lifestyle. No equity in the property. No prospect of a return for creditors in the event of your being made bankrupt. It would make absolute sense for creditors to accept a lump sum settlement in an IVA. While your family lifestyle would diminish somewhat, you would be debt free and would not lose your family home. While your credit rating would be affected for six years, borrowing wasn’t exactly on your agenda for the foreseeable future anyhow.
Get IVA Advice
If you find yourself in circumstances such as in the example outlined above, a good initial course of action is to consult with a reputable Insolvency Practitioner, otherwise known as an IP. Your circumstances will be treated confidentially and your IP will be able to advise you not just on the merits of an IVA but also on the other options available to you and your family and many IPs and their firms provide such initial advice free of charge.
We have expert advisors and Insolvency Practitioners who can assess your situatuion fully and can determine what the best option is for addressing your debt problems. All advice is free and confidential. Fill in the form on this page and we will contact you as soon as possible.