Avoiding Bankruptcy With An Individual Voluntary Arrangement

Nobody wants to be caught in the debt; however

, most of the people end up in huge debts, even if they do not want to. The economical as well as the social life of a person is greatly affected through this. The person is so much harmed by the debt that it becomes inevitable for him/her to avoid bankruptcy. This situation forces him/her to sleepless nights, and stress of finances. Thus, the person totally loses his peace of mind.

Fortunately, there are a lot of ways of avoiding bankruptcy. One of these is known as Individual Voluntary Arrangement or IVA. Established and governed by the Insolvency Act 1986, IVA is a contractual agreement, supervised by a Licensed Insolvency Practitioner, with the basic aim to help the individual, partner or sole trader avoid the condition of bankruptcy by reaching a compromise with the creditors. This negotiation is expected to offer a larger repayment towards the debt than could otherwise be expected, were the debtor to be made bankrupt.

The main facilitator of this payment is the debtor, who contributes to the arrangement from his/her income over a designated period, a third party contribution, or other source that would not ordinarily be available to a Trustee in Bankruptcy.

The payback period is decided within which the debtor must pay the money back to the creditor. Most of the times, the period is usually five years. The debtor has to pay a percentage of the debt to the creditor within this period. This is generally done under the supervision of an insolvency practitioner. Any outstanding debt is usually written off at the end of the IVA.

Usually, the debtor is the person who can initiate an IVA. However, the trustee, official receiver, or even the bankruptcy courts can do so if the debtor is an undercharged bankrupt. The court is required to consider whether an IVA might be more appropriate than bankruptcy when hearing the petition of a debtor.

An IVA and bankruptcy cannot be termed mutually exclusive. However, bankruptcy is an alternative of an IVA. The debtor can apply to the Court for an annulment of the bankruptcy order if an arrangement is approved post-bankruptcy. This type of IVAs can be charged only in the case when the bankrupt is un-discharged.

However, If IVA is offered subsequent to formation of bankruptcy order, and then it will be possible to put forward the Official Receiver to be the controller of the agreement. The Arrangements proposed by the Official Receiver are extremely limited, and are not really well liked. This sort of agreement is known as Fast Track Voluntary Arrangement and is appropriate in some cases only.

An IVA has numerous benefits. IVA is a private contract involving the nonpayer, and the creditor. Unlike insolvency, it does not prevent the nonpayer from getting credit, even though it may be there in the IVA plan as a clause.

by: Edwood Woodward

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