What if my IVA is rejected?
An Individual Voluntary Arrangement (IVA) is not automatically accepted by creditors. In fact each creditor votes as to whether to accept the proposal or not. Creditors' representing at least 75% of the total debt need to agree to the proposal and then it is legally binding on all. Due to the knowledge and expertise of a debt solutions company and Insolvency Practitioner, most IVA's put forward are accepted by creditors. However there are some that are rejected. The question is what happens next?
Is bankruptcy inevitable?
Next steps will in some measure be decided by the circumstances of an individual case. It may be that the creditors or a particular creditor have decided that bankruptcy is in their best interests and will proceed in this direction. The debtor may have little choice but to accept this outcome. But on many other occasions creditors are looking to receive all their debt back through a repayment plan.
Can a repayment plan work?
In the case of a failed IVA, the debtor has to decide what offer to make to the creditors. They may be homeowners with the prospect of losing their property through bankruptcy, or such an outcome affecting their job or career opportunities. They are desperate to avoid bankruptcy. In such circumstances, many whose IVA has been rejected or is simply unworkable opt for a Debt Management Plan. This can be attempted directly by the debtor to the creditors or through a Debt Management Plan company.
Implications of a Debt Management Plan (DMP)
Such a plan enables the debtor to repay their whole debt but at an affordable rate and over a period of time. There is not the same degree of legal protection as in an IVA, and there is no fixed end-point, the plan usually continues until the debt ends. However the plan enables the debtor to avoid the even more painful consequences of bankruptcy. Furthermore the plan is flexible, meaning that payment levels can usually be changed in accordance with any changing circumstances.
Creditors may be open to a lump sum settlement offer to cover the whole of their debt. Of course not everyone has access to such funds (it may require releasing equity, selling assets or finding a friend or a family member who can help) but if such a lump sum was a possibility, then creditors may be open to a negotiated settlement offer.
Reapplying for an IVA
It may be that someone who has had an IVA rejected, and switches to a DMP, may find that changing circumstances enables them to make a new IVA offer to their creditors. An Insolvency Practitioner would need to feel comfortable that the new IVA is likely to meet with a positive outcome, but certainly this is an option for someone whose IVA has been initially rejected.
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