What Can Not Work Out in an Individual Voluntary Arrangement.
On the whole articles you will read pertaining to solutions for personal financial troubles are inclined to pinpoint the merits, advantages, positive aspects, upsides or whatever constructive hype you wish to place on it, of the selected treatment being explained. That's quite understandable in these recessionary days when we can do with a little bit of good news, even though it's of the 'medicine is good for you - regardless of how it tastes' variety.With that frame of mind we will take a look at an Individual Voluntary Arrangement (IVA) sensibly taking on board its positive characteristics but not overlooking the sour taste that some of its shortcomings leaves.
For anybody who proposes an IVA to their creditors, it is an event of great delight and sometimes unbridled happiness on the day of the Meeting of Creditors (MOC) after they learn that their IVA has been accepted. They can now look forward to being free from debt in a realistic time period. No more debt collectors, no more phone calls from lenders, no more bills, invoices or statements of account and no more risks of legal action. Visits from bailiffs will be a thing of the past. So what are the hurdles of an IVA and what can screw up?
Once the understandable personal excitement which came after the MOC has died down, the supervisor of the IVA will spell out specifically what the person in debt must do to abide by the terms and conditions of the IVA. This incorporates compliance with creditor modifications previously accepted. These modifications often call for an increase in the debtor's contributions to the IVA. The first and probably the most major pitfall may materialize in the event the debtor suffers a substantial lowering of earnings and is for that reason not able to make the contracted contributions to the IVA.
This sort of earnings decline could be on account of the borrower losing their work within just a year of the commencement of the IVA and as many as 10% of borrowers entering an IVA could be up against this issue. Other people may perhaps be facing short time employment or have to take pay-cuts. The current recession has exacerbated this difficulty with some employers pursuing 'voluntary' pay cuts from their employees. Such a reduction in salary is not the debtor's fault nor is it the fault of lenders. Nevertheless, creditors authorized the IVA and may well have changed its terms and conditions, such as seeking a minimum dividend to be paid. Defaulting on as few as two or three monthly contributions could very well be deemed as a failure to abide by the terms and conditions of the IVA. When that happens, the supervisor may send a Certificate of non-Compliance to the debtor and may call a General Meeting of Creditors to decide on the next plan of action. Although inability to make monthly contributions to the IVA is probably the most frequent matter of non-compliance there are others.
The debtor and his or her supervisor need to deal with such examples of non-compliance and this is normally done by spelling out four options for lenders at the General Meeting of Creditors. Creditors may approve one of these choices or pick an option of their own with the authorization of over 50% of voting creditors necessary to reach a decision. The four options are:
To petition for the bankruptcy of the debtor if the supervisor has been obliged to retain funds for this purpose; to terminate the IVA and distribute any available funds among the creditors; to vary the arrangement, authorizing the debtor to offer a variation of the IVA to creditors and finally to do nothing for the time being. While the last option is an unlikely outcome, it is one that might arise in certain circumstances. Creditors may alternatively decide to authorize the supervisor to allow the debtor to take a payment break for say six months, to enable monthly contributions to resume or they may decide on what other actions are to be taken.
Apart from the inability to make monthly contributions as needed, the debtor may well have to deal with several other dangers. If for instance, the debtor were to incur a new debt after the IVA was accepted without the permission of the supervisor, the new lender would not be bound by the terms and conditions of the IVA which would surely fail. The new lender could petition for the debtor's bankruptcy, if a debt in excess of 750 were to be left outstanding.
Pitfalls for self-employed debtors include the failure to make returns to HMR&C within the permitted timescale. HMR&C frequently attach a modification to the proposal of a self-employed debtor, requiring the supervisor to terminate the IVA for a non-compliance of this kind.
When the debtor does not disclose in his or her IVA proposal, that they have a significant asset or if they fail to divulge post IVA acceptance that they have obtained a windfall, then the IVA will almost certainly be terminated and be deemed to have failed.
Most debtors now tackle any value which they may have in their property in their IVA proposal. Whenever they neglect to address such value, creditors will generally modify the proposal requiring them to so do. Ordinarily debtors will have to re-mortgage their property at 85% loan to value in the fourth or fifth year of their IVA and to contribute a lump sum from the released equity to their arrangement. However, it may become impossible for the debtor to make the anticipated equity contribution when it falls due. With the slump in property prices borrowers could find that their property is in negative equity and even if a little bit of equity remains in the property, they may be unable to acquire a mortgage mainly because of the recession. In such scenarios, the debtor may offer a variation proposal to lenders. This kind of variation proposal could be to extend the duration of the IVA by up to one year and to make extra monthly contributions for that time period. The aim of such additional payments would be to counterbalance the decline in the dividend as a result of the shortage of realisable equity in the property. No less than 75% of voting lenders will need to agree with such a variation proposal for it to be agreed upon.
There are lots of these kinds of changes of circumstances which may transpire after IVA approval and which might significantly affect the debtor's ability to completely comply with the terms of the IVA. For instance, the debtor or his or her partner or a member of his or her family may contract a severe ailment or suffer an injury and as a consequence reducing the family income substantially. Should such an regrettable event take place, the borrower ought to notify the supervisor of the IVA immediately so that all practical actions can be applied rapidly to identify a solution and to obtain the creditors' agreement to vary the IVA as required.
For anybody who proposes an IVA to their creditors, it is an event of great delight and sometimes unbridled happiness on the day of the Meeting of Creditors (MOC) after they learn that their IVA has been accepted. They can now look forward to being free from debt in a realistic time period. No more debt collectors, no more phone calls from lenders, no more bills, invoices or statements of account and no more risks of legal action. Visits from bailiffs will be a thing of the past. So what are the hurdles of an IVA and what can screw up?
Once the understandable personal excitement which came after the MOC has died down, the supervisor of the IVA will spell out specifically what the person in debt must do to abide by the terms and conditions of the IVA. This incorporates compliance with creditor modifications previously accepted. These modifications often call for an increase in the debtor's contributions to the IVA. The first and probably the most major pitfall may materialize in the event the debtor suffers a substantial lowering of earnings and is for that reason not able to make the contracted contributions to the IVA.
This sort of earnings decline could be on account of the borrower losing their work within just a year of the commencement of the IVA and as many as 10% of borrowers entering an IVA could be up against this issue. Other people may perhaps be facing short time employment or have to take pay-cuts. The current recession has exacerbated this difficulty with some employers pursuing 'voluntary' pay cuts from their employees. Such a reduction in salary is not the debtor's fault nor is it the fault of lenders. Nevertheless, creditors authorized the IVA and may well have changed its terms and conditions, such as seeking a minimum dividend to be paid. Defaulting on as few as two or three monthly contributions could very well be deemed as a failure to abide by the terms and conditions of the IVA. When that happens, the supervisor may send a Certificate of non-Compliance to the debtor and may call a General Meeting of Creditors to decide on the next plan of action. Although inability to make monthly contributions to the IVA is probably the most frequent matter of non-compliance there are others.
The debtor and his or her supervisor need to deal with such examples of non-compliance and this is normally done by spelling out four options for lenders at the General Meeting of Creditors. Creditors may approve one of these choices or pick an option of their own with the authorization of over 50% of voting creditors necessary to reach a decision. The four options are:
To petition for the bankruptcy of the debtor if the supervisor has been obliged to retain funds for this purpose; to terminate the IVA and distribute any available funds among the creditors; to vary the arrangement, authorizing the debtor to offer a variation of the IVA to creditors and finally to do nothing for the time being. While the last option is an unlikely outcome, it is one that might arise in certain circumstances. Creditors may alternatively decide to authorize the supervisor to allow the debtor to take a payment break for say six months, to enable monthly contributions to resume or they may decide on what other actions are to be taken.
Apart from the inability to make monthly contributions as needed, the debtor may well have to deal with several other dangers. If for instance, the debtor were to incur a new debt after the IVA was accepted without the permission of the supervisor, the new lender would not be bound by the terms and conditions of the IVA which would surely fail. The new lender could petition for the debtor's bankruptcy, if a debt in excess of 750 were to be left outstanding.
Pitfalls for self-employed debtors include the failure to make returns to HMR&C within the permitted timescale. HMR&C frequently attach a modification to the proposal of a self-employed debtor, requiring the supervisor to terminate the IVA for a non-compliance of this kind.
When the debtor does not disclose in his or her IVA proposal, that they have a significant asset or if they fail to divulge post IVA acceptance that they have obtained a windfall, then the IVA will almost certainly be terminated and be deemed to have failed.
Most debtors now tackle any value which they may have in their property in their IVA proposal. Whenever they neglect to address such value, creditors will generally modify the proposal requiring them to so do. Ordinarily debtors will have to re-mortgage their property at 85% loan to value in the fourth or fifth year of their IVA and to contribute a lump sum from the released equity to their arrangement. However, it may become impossible for the debtor to make the anticipated equity contribution when it falls due. With the slump in property prices borrowers could find that their property is in negative equity and even if a little bit of equity remains in the property, they may be unable to acquire a mortgage mainly because of the recession. In such scenarios, the debtor may offer a variation proposal to lenders. This kind of variation proposal could be to extend the duration of the IVA by up to one year and to make extra monthly contributions for that time period. The aim of such additional payments would be to counterbalance the decline in the dividend as a result of the shortage of realisable equity in the property. No less than 75% of voting lenders will need to agree with such a variation proposal for it to be agreed upon.
There are lots of these kinds of changes of circumstances which may transpire after IVA approval and which might significantly affect the debtor's ability to completely comply with the terms of the IVA. For instance, the debtor or his or her partner or a member of his or her family may contract a severe ailment or suffer an injury and as a consequence reducing the family income substantially. Should such an regrettable event take place, the borrower ought to notify the supervisor of the IVA immediately so that all practical actions can be applied rapidly to identify a solution and to obtain the creditors' agreement to vary the IVA as required.
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posted by Vittoria @ August 24, 2011
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