The purpose of these pages is to give basic and straightforward answers to queries that individuals want to pose on the subject of IVAs and insolvency in general but may avoid doing this for all sorts of reasons. Let’s begin with examining a scenario when somebody is preparing to get married but is concerned that their fiancé may perhaps be insolvent and that their insolvent fiancé’s creditors might seize their money after the wedding. Although love may be blind, it would be natural for partners to reveal to each other the state of their financial situation prior to getting hitched or even before beginning to co-habit. This is desirable simply because failing to reveal monetary troubles before starting to live together could lead to a failure of trust subsequently in the union in the event that one partner happens to be insolvent and their financial difficulties come to the attention of the other solvent party.
Yet even if there’s no disclosure prior to co-habitation, the solvent person can take measures to protect their assets and earnings and should have nothing to to be scared of on a legal or ethical basis from their insolvent partner’s lenders. The insolvent party can look at a variety of financial remedies while not compromising the finances of their solvent partner. Such remedies may include going into an IVA or even petitioning for bankruptcy. The solvent spouse may want to assist his or her partner financially in such a solution but is not obliged to do this. Both parties should consult an insolvency practitioner and acquire independent legal advice prior to going on with an insolvency solution.
People generally want to know how long an IVA lasts before they commit to taking that route. The time period of an IVA really is dependent upon the debtor’s situation. The four key factors are the debtor’s property, liabilities, earnings and living expenses. Of course the approach of creditors is crucial and this is indicated at the meeting of creditors which comes before the commencement of the IVA. In practice the debtor’s IVA proposal spells out the planned duration and while most IVAs have a projected term of five years from the date of commencement the duration can be as brief as a few months or as long as seven years. The shorter duration IVAs are typically based upon what is referred to as a ‘one-off’ proposal, where the major contribution to be made by the debtor is a lump sum payment. In these instances the lump sum payment may for example come from the proceeds of the sale of property, or from the release of equity by the remortgage of property or be funds advanced by the debtor’s wife or husband or by other members of the debtor’s extended family. In the event the person in debt has steady disposable income in addition to assets the IVA could be a combination of a lump sum payment and regular monthly contributions from income and in this kind of case the timeframe might be five years or for a longer time. Nonetheless the use of the lump sum payment can be subject to the debtor’s ability to refund the source of the lump sum payment (family members or re-mortgage company) out of income and in some cases the debtor’s disposable earnings might possibly be mainly committed for that purpose. If that is the way it is, the duration of the IVA could be relatively limited.
A couple of additional factors affect the duration of the IVA. Lenders may, at the meeting of creditors, look for an extension to the suggested time-span in order to boost the dividend or to tackle the potential value which can accumulate in the debtor’s property during the average five years time period of the IVA. The other issue is that the debtor’s situation may change for the worse through the life of the IVA and he or she can no longer afford to pay the monthly contributions which were offered in the initial IVA offer and which were accepted at the meeting of creditors. One solution to this problem is to reduce the monthly payments and to raise the number of monthly payments to be made in order to achieve the dividend initially proposed. The procedure to do this is for the supervisor of the IVA to call a ‘variation meeting’ of creditors to agree to the lower payments and extended length of time. In general IVAs last five years with a small number having a much reduced duration of as little as six months and an even lower percentage lasting six or seven years.
The cost of an IVA is a matter of concern to anybody considering going down that course, especially since they are already encountering financial troubles and can usually ill-afford further expense. Assuming they hire the services of an IVA supplier, should they make or have to make pre-IVA payments to that service 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 elect 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 usual 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 overall, 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 ought to 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 amendment to IVAs made by creditors 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 skills in insolvency such as the Certificate of Proficiency in Insolvency (CPI). Every business which provides 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 relevant 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 predicted 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.