Published in Debt Advice Features on Thursday, March 29 2007

This is a bit of a miss-conception. Under the terms of an Individual Voluntary Arrangement you can get up to 75% written off by the creditors, but you would always need an Insolvency Practitioner to put your Individual Voluntary Arrangement through, and of course they have fees. 

This doesn’t mean you won’t get anything written off, you will probably get a decent amount still wiped off the debts - but it will not be a straight 75%.  In the case of the fees you can see how it would work in the following example;

Mr. Smith has £40000.00 of debts, under the Individual Voluntary Arrangement he will pay back £10000 minimum (25%), and then the fees go on. These can be as much as around £8000, so Mr. Smith pays back £18000 for example (This would work out at £300 per month - £18000 divided by sixty payments). He isn’t getting a bad deal, as even though these fees seem high, he is still getting £22000 written of the debts, which is more than half, and he is likely to be paying a lot more than £300 per month to £40000 of debt.

As a credit counselor I hear people asking for a “good deal” or a “quote”, again this is a miss-conception. Your payment is entirely based on your income and expenditure. This could mean in the example above that although the minimum Mr. Smith can pay into an Individual Voluntary Arrangement is £300.00, after all his outgoings have been taken away from his income he may have £400.00 a month left over. And this is what he must pay. This would mean he pays back £24000.00, again he is still getting a good deal, and he can afford to pay this each month. People may try to manipulate their income and expenditure, but this can prove more difficult than you think. For a start there are figures set down that are acceptable as expenditure and if anything rises too high or too low below these, it will be flagged up and questioned, and proof may be required. Proof is always required for expenditure items such as rent payments, mortgage payments, car finance payments etc, and usually four months bank statements are examined so direct debits for items such as gas and electricity will be noted from here. If you under estimate anything, or go with a company that gives you the “best deal”, that is the lowest price, and they get to this figure by making your income and expenditure too tight, the creditors will actually reject your Individual Voluntary Arrangement. (Creditors do get to decide if you enter an IVA or not, they vote on it and you must get 75% of the vote). So sometimes the best deal isn’t necessarily that, you may be asked to pay up front fees of several months payments, and then the creditors reject your Individual Voluntary Arrangement because your payment is too low…

You have to bear in mind as well that the Insolvency Practitioner who puts you forward for an Individual Voluntary Arrangement is legally declaring to a court that you cannot afford your current payments, if you hide things or manipulate things, this will come to light and if this means your IVA fails at any point you can and most likely will be taken into bankruptcy. The IVA is something to take very seriously.

Also the creditors are getting more and more picky with what they want in an Individual Voluntary Arrangement. Some will still write off 75% of the debt to them, where as others are wanting 50% back for example, and who ever advises your Individual Voluntary Arrangement should be knowledgeable about that.

This means in no case can exactly 75% be written off, although considering how much can be written off it isn’t all bad news!