New IVA Rules
An Individual Voluntary Arrangement (also known as an IVA), is a legally binding agreement that allows people in serious debt to have their debt frozen. It is an alternative to bankruptcy, that was originally designed for small businesses, but is now popular with an increasing number of individuals who face ever increasing debt. But an IVA isn't always suitable for some people.
With an IVA, the debt is frozen and so doesn't get additional charges or interest added onto it. The debtor then arranges a deal with the creditors and agrees to pay back a set amount every month for a pre-determined length of time. This is usually over a 5 year repayment term. At the end of the term, any remaining debt is usually written off, leaving the debtor in the clear, albeit with a slightly worse for wear credit rating.
However, there has been controversy over recent years that some IVA providers were misleading consumers, and were offering IVA's to them even when it wasn't in the consumers best interest.
Now The Insolvency Service has set up a new protocol to allow the whole process to be more transparent and easier for consumers to make an informed decision about taking out an IVA.
The protocol, which requires input from the debtors as well as the insolvency practitioners, includes the following points:
- insolvency practitioners must perform stringent checks on the debtors current finances - to make sure it is accurate
- debtors must give accurate and up-to-date information on their finances - incoming and outgoing
- debtors have to be encouraged and attempt to reach an informal agreement and only opt for a formal IVA as a last resort
- Any IVA proposal that is rejected must come with a valid explanation
- A mutual agreement must be decided on prior to formalising an IVA, on a procedure if debtors fail to make their IVA repayments
With over 44,000 IVA's taken out in 2006 and the number set to rise in 2008, this new code of conduct has been welcomed by the Consumer Credit Counselling Service, a debt advice charity.
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