An Individual Voluntary Agreement (IVA) is a legally binding agreement between the debtor and their creditors.
In order to apply for an IVA, the debtor must owe over £15,000 to at least three creditors and they or their partner must have a source of income that originates from employment.
What's more, during the IVA, all interest charges will be frozen in order to break the circle of debt.
Once the creditors have agreed on the terms and conditions of the IVA, the debtor has 30 days to make the first payment in order to validate the agreement.
Furthermore, they are then under the obligation to keep up with the payments for the agreement to be successful.
The payments are usually made by standing order on a date that best suits the debtor (the payments are generally made a couple of days after the debtors so they can avoid overspending).
However, the debtor must notify the IVA Supervisor if they are unable to make a monthly payment, as it is likely the agreement might fail.
Even though in most IVA's there is a clause that states the agreement will fail following two mispayments on behalf of the debtor.
An early settlement of the IVA is also possible under very specific circumstances.
These include contribution by a third party towards the settlement of the agreement, and the sale or the re-mortgage of a property.
If the IVA is settled following a contribution from a third party, the debtor needs to send their creditors justification of how the funds were aquired.
If the settlement of the IVA follows the sale of the debtor's property, it is the equity generated on the sale of the site that may be enough to offer the full and final settlement of the IVA.
In the case an IVA is settled following the re-mortgage of the debtor's property, it is the equity generated that will enable the debtor to offer the full and final payment of their debts.
However, unlike it is the case for the sale of a property, the debtor is advised to consult a specialist in order to make sure it is affordable option for them.
In any case, the early settlement of an IVA needs to be approved by the creditors.
The supervisor will put forward a proposal stating the reasons for the early settlement and the details of the offer.
If the proposal is approved, a time limit of three months is set for the creditors to receive the money.
Once the IVA has been completed, the debtor is issued with a certificate of completion that will also be sent to their creditors so that they know the IVA has been satisfied.
The debtor also receives a statement that shows the amount of money they paid into the IVA and how it was distributed amongst the creditors.
Finally, the Insolvency Service will update their records to show the IVA has been completed successfully and should ask the credit agencies to update their records.