When an individual is bogged down over burdened debt
, all his future and security lays at the mercy of creditors. The creditor can put immense pressure on the debtors with threats of legal action and imposing stiff financial penalties. IVA moves the advantage away from creditor by blocking the creditor right to take legal action against the debtors and also preventing him from levying financial penalties. It is a formal agreement between the creditor and debtors where the debtor is bound by the terms of agreement strictly. If the debtors fail or are unable to fulfill the terms of the agreement, the IVA agreement fails. However, there can be some flexibility in exceptional cases and circumstances, or otherwise IVA is very rigid in its terms.
All the debtors make payments against their debt to the Insolvency Practitioner who in turn distributes it among the creators. An IVA does allow its debtors to enter into agreements with other creditor while he is at IVA and despite this if the debtor enters into agreements with other creditor, may lead to failure of IVA by the Insolvency Practitioner.
Credit Rating: IVA will be noted on the credit file of the debtor and will stay there till the debtor clears his debts and completing IVA terms, till then the debtor are unable to get credit from other creditor or from the bank. Once the name of the debtor is removed from the register of its creditor he can raise his credit ration one again.
Disadvantages:
The Insolvency Practitioner is vested with some discretionary powers which he can utilize in case of exigency. He can reduce the debt by 15% without taking the approval of creditors. In the extreme case IP can request for change in terms of the IVA by calling a variation meeting of the creditor, if the circumstances permits. He can instigate a payment break for six consecutive months which if he thinks is necessary to help more serious payment disruptions by the debtors.
Insolvency Practitioner has discretionary power to reduce the payment of debt or by 15% without the need of credit or approval. In extreme cased the IP can request for change in payment terms by calling a variation meeting if the change in circumstances permits. IVA prevents the debtor from in ethical co operative behavior of the creditor who is always in look out for the opportunity to fleece its debtor.