Once in place an IVA is legally binding on both you and your creditors. The area of the law governing this debt solution is the Insolvency Act of 1986.
When was the Law regarding IVAs introduced?
IVAs were introduced into the law in 1986 through Part 1 of the Insolvency Act. They were originally designed as an alternative to bankruptcy for use by company directors.
However the solution is not just available for business people. Anyone can apply for an IVA if they feel it is a sensible way to resolve their debt problem.
In fact over the past few years it has become one of the most popular debt solutions. Since 2009 around 4000 people a month have started an IVA. They come from all walks of life.
An IVA requires a formal proposal of repayment to your creditors. You are not allowed to produce this yourself. It can only be done by a Licensed Insolvency Practitioner (IP).
What is the IVA Protocol?
The Insolvency Act does not provide much guidance as to what an IVA proposal should look like. It simply requires an offer of repayment to be made to creditors which gives a clear benefit over bankruptcy.
It has always been left to individual Insolvency Practitioners to decide the actual content of the proposal and the offer it should contain. As a result a wide variation of different styles developed over the years. This became confusing for creditors and individuals alike.
As a result in 2008 the IVA Protocol was introduced. This was an agreement between the major commercial creditors and IPs to use a common standard for proposal formats and terms and conditions.
The IVA Protocol is not legally enforceable and does not have to be used. However where it is there is generally commitment from creditors to accept the Arrangement without modification.
Revisions to the IVA Protocol
There have been a number of major revisions to the IVA Protocol since its introduction. The first was in January 2014 when section 9 which refers to equity release during the Arrangement was amended.
As a result when an IVA is based on Protocol terms and conditions home owners now have to attempt to release equity using a secured loan if remortgaging is not an option.
The Protocol was updated again in June 2016. The most notable change at that time was in section 10.8. This introduced more flexibility around payment breaks. As a result an individual may now take up to 9 months of payment holidays during the arrangement.
Most IPs tend to use Protocol compliant IVA proposals. However the format is not always used especially in the case of people who are self employed and have business debts.