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Dealing with Creditors

Creditors Reviewing and Voting

The creditors are given a minimum of two to three weeks to review and respond to the proposal.

Often it is a specific department of the creditor that deals with the IVA, e.g. the Collections and Recoveries department.

Also, the major banks tend to use one of the major accounting firms to help them process all of their IVAs. 70% or more of UK banks are represented by PwC, KPMG or Grant Thornton.

Sometimes it takes a few days for the proposal to be forwarded to the correct department or external firm.

Meeting of Creditors

A specific date and time is set to bring together the votes from the various creditors. The Insolvency Practitioner acts as the chairman of this meeting.

This is almost always a ‘virtual’ meeting whereby the creditors send through their votes in advance by fax or by post. So there is no real meeting, it is more of a point in time to count up the votes.

Creditors can choose to 'Approve', 'Reject' or 'Approve with modifications'. Some creditors do not vote at all.

If 75% (by value of debts) of voting creditors approve the IVA, then it is approved for all creditors including those who rejected or did not vote.

If it is undecided the Insolvency Practitioner can put back (or adjourn) the meeting while he communicates between the creditors and the debtor. He can continue to do this for up to two weeks.

Post Meeting Set Up

Once the IVA has been approved, all of the relevant parties must be informed.

The Insolvency Practitioner sends out a Chairman's Report that documents the voting and the outcome of the meeting.

The court is also informed and a notice is sent to the Insolvency Service so that they can record the IVA on the Insolvency Register.

At this point a new bank account is set up for the IVA into which the payments are made monthly, and the Insolvency Practitioner begins the Supervision period.

What are the criteria required to accept an IVA?

The majority of IVAs are made up mostly of consumer credit debts, that is to say credit cards, personal loans and store cards. All of these financial products are supplied by a relatively small number of lending institutions who have started to standardise around what criteria they use for voting. In addition these lending institutions tend not to vote themselves, but instead are represented by an accountancy firm. Hence, the majority of creditors are actually represented by one of three accountancy firms such as PwC, KPMG or Grant Thornton. This brings even more standardisation to the voting behaviour.

The following are some guidelines as to what tend to be acceptable.

Resident in England, Wales or Northern Ireland
IVAs are not available to those residing in Scotland or outside of the UK. In Scotland there is a similar mechanism called a Standard Trust Deed.

IVAs can be available to residents of England, Wales and Northern Ireland who are currently living or working abroad.

The Debtor should be insolvent
Generally, you (the debtor) must be unable to keep up their agreed level of payments on a debt such as a credit card or loan. For example an IVA should not be used as a mechanism to avoid paying back debts in full.

Debts should be over £15,000
There is a significant amount of work that needs to go into setting up an IVA and supervising it for up to five years. As such it does not tend to be worth it to use an IVA for smaller debts. It is currently recognised that there is a requirement for the equivalent of an IVA for smaller debts - The Insolvency Service have put forward a proposal for an SIVA (Simple IVA).

Payments into the IVA Must Be Affordable
The debtor should be able to show that the committed payments will be affordable for the required period. Equally, the creditors and the Insolvency Practitioner will also try to make sure that it will not be too difficult to make the payments. For example, the debtor should be able to show that:

  • They are in stable employment
  • They have put aside enough money for basic food and living each month
  • They have thought about any impending increased expenditure such as a new child

Modest and reasonable living expenses
During the period of the IVA the monthly contribution is calculated by taking monthly income after tax minus living expenses such as rent, bills, transport, food, etc. As such, the individual should show that they will not be spending excessively and that they will be attempting to maximise the payments into the IVA. The following are some of the more common compromises that individuals can make:

  • Cut down on social expenditure, alcohol and tobacco
  • Move to less expensive rented accommodation, or take on a lodger
  • Cut down on bills such as mobile phone and satellite TV

Declare and make payments from significant assets
Should the debtor own any assets which they could reasonably sell or extract money from, then they normally should include this in the proposal. The following are some of the more common contributions from assets:

  • Release of equity from a property e.g. remortgage
  • Take funds out of a savings account
  • Surrender an investment such as a private pension, shares or endowment policy
  • Exchange an expensive car for a cheaper model

Honest and Responsible Attitude

If the Insolvency Practitioner (IP) has any reason to believe that the debtor is being deceitful or dishonest in any way or that the IVA is unfair to either party then they have a duty to report this to the creditors. Equally if the IP believes that the IVA may not complete properly then this will also be reported.

The five year period of IVA can be a significant undertaking. It is important that the debtor fully understands the process and is committed to completing it successfully.

Able to Show Sufficient Proof of Circumstances

The debtor's proposal for an IVA is based on information about their assets, income and monthly expenditure. The debtor will need to provide suitable evidence to support their proposal. For example:

  • Payslips
  • Recent bills
  • Valuation of property (if applicable)
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