Like fingerprints or snowflakes or DNA, every IVA is different to another even if the differences can often be hard to detect or notice. This IVA case study is not a real IVA, it is for demonstration purposes only. It has been written in such a way that it could well be a viable IVA. The circumstances described could be similar to yours or those of anybody who has encountered financial difficulties and finds themselves insolvent. This first IVA case study is a fairly simple one.
Later on we will examine more complex cases and how an IVA might pan out when the client’s personal circumstances and financial difficulties are more complex. You can also view more IVA Examples on our main website.
IVA Case Study 1
- A fifty something male who has unsecured debts of £60,000.
- He lives alone in a modest flat in an urban area and commutes to work.
- He has no dependents.
- He gets some moral support from his elderly parents who help him out financially on occasion when they can afford it.
- He sometimes comes to visit them, mainly at weekends when they provide him with meals and allow him to use their car.
- He was once self employed and had a thriving little business in the construction area.
- He even employed a few people on some of the bigger jobs he did.
- He was married at one time but got divorced about five years ago.
- His wife owned the matrimonial home and he got nothing out of that in the divorce settlement.
- When his small business fell on hard times during the recession he tried to keep going and became highly reliant on credit but eventually he had to close the business and seek employment.
- He owed money to various trade and personal creditors and had a substantial debt also to HMRC arising from the failed business.
- He had given personal guarantees for many of the loans he had obtained in his efforts to turn the business around.
Monthly income
- His monthly net income from his PAYE job is about £1,860 per month.
Monthly expenses
His living expenses come to about £1,460 per month, made up of
- household expenses of £750 of which rent accounts for £500
- personal expenditure of £360 of which food consists of £220
- transport costs of about £350, mainly incurred in commuting costs to and from work.
Disposable income in an IVA
Disposable income is the amount of money left over each month that could be used to go towards your IVA repayment. It is worked out by taking away all of your expenses from your income each month.
In this example the client has a disposable income of £400 per month. This amount is not sufficient to repay his debts which defines him as being insolvent. After gaining advice from an Insolvency company they advise him of all options available and he decides to proceed with an IVA as it seems like his best option. The Insolvency Company prepares his IVA proposal on his behalf.
Please note: If you are ever drafting an IVA proposal with an Insolvency Company, do not pay any upfront fees! Your IVA proposal could fail leaving you out of pocket £100’s of pounds. We do not charge any upfront fees for setting up an IVA proposal.
Length of the IVA
The proposed IVA is for a term of five years or sixty months (standard IVA term) with the clients contributions being £400 per month making a total of £24,000 in monthly contributions in total. The administrative costs of the IVA are estimated at a total of £5,400 leaving £18,600 left over for distribution to creditors and giving them a dividend of 31p in the £ (That’s 31p in every£1 paid back to the debt).
Should the clients financial circumstances improve significantly over the term of the IVA, then he would be obliged to contribute additional monies, by no means all of the extra income, to the IVA, thus improving the dividend payable to creditors.
Debt Free on Completion
In five years time he will be free of all debts and his credit rating will begin to improve. Any defaults on his debts will be wiped off his records in a further year. He will then again be free to borrow monies and obtain credit should he wish to do so.
While bankruptcy might have been an alternative solution for our debtor, the costs of bankruptcy are quite high and creditors would be lucky to get anything back. While the debtor would only be obliged to make thirty six monthly payments of £400 in bankruptcy the bankruptcy ‘pot’ of £14,400 would be wiped out by the administrative costs of the bankruptcy and the creditors in this case would get nothing. The debtor’s credit rating would still be impaired for as long as it would be in an IVA, so there would be no benefit there either for the debtor.