Operating a self employed business is stressful especially if you have debt problems. Debts can accumulate for a range of reasons; bad debts, lost contracts, or just poor financial control. The debts may be a combination of business and personal, as personal loans and credit card debts are often accrued trying to support the business.
Voluntary Arrangements can be used in a number of ways which are explained below:
Arrangements based on contributions
The most common IVA if you are self employed involves retaining your business assets while offering to pay monthly contributions out of future earnings over a fixed period of time, usually 5 years. Where there is a personal property with equity, creditors will expect that a sum is introduced at the end of the arrangement in place of a share of your equity.
Partners can propose interlocking IVA’s which essentially provides for the partners to make one monthly contribution to settle all debts irrespective of whether the debts are in partner’s name or owed jointly. Please see Voluntary Arrangements for Partnerships.
Arrangements based on a full and final Settlement
Generally, these types of arrangements offer creditors a lump sum to settle their debts. The lump sum could be a 3rd party sum or sums raised from the sale of a property (as detailed below) or funds from the sale of assets not needed by your business. Creditors are only likely to accept a full and final if they are satisfied you are not able to pay monthly contributions as well.
Is an IVA suitable for me?
An IVA could be appropriate for you if you are struggling to meet business debts and possibly personal debts as well. The most compelling benefit of an IVA is that you pay monthly affordable payments for a 5 or 6 year period with the unpaid balance being written off when the IVA is successfully completed.
The starting point for working out whether an IVA is appropriate if you are self employed, is working out if your business freed from historic debt, can trade viably on a cash positive basis and afford to make a monthly contributions to your business and personal debt.
Examples of unsecured creditors whose debt can be included in an IVA are:-
- Credit cards and loans
- Debts owed by you and someone else “jointly owed”
- Monies owed to individuals including friends and family
- Debts due to HMR & C including overpaid benefits, self assessment tax, VAT
- Arrears of council tax and utilities
- Trade creditors who supply you if you trade as self employed
- Shortfall once a property has been repossessed
The debts that cannot be included in an IVA include:-
- Matrimonial debt – monies owed to an ex-husband or wife which a court has decided should be paid
- Student debt
- Court fines or fines for traffic violations
Can an IVA stop action by creditors?
Yes but it depends on the action and how far it is has gone. We can apply for an “interim order” which prevents creditors from starting or continuing action against you. This includes writs, judgments, charging orders, liability orders and petitions for bankruptcy. It is vital if you are facing action to get in touch immediately. If you leave it too late, we might not have enough time to help you obtain an interim order before the debt becomes charged on your property or you end up bankrupt.
If you are made bankrupt and you have assets that are risk of being sold by your Trustee in Bankruptcy, it is possible to propose an IVA and if this is agreed by your creditors, your bankruptcy can be cancelled. You will need specialist advice on whether this is possible.
IVA – the Benefits and Risks
Finding the right solution is only possible if a clear picture is available of the short term and long term benefits and risks of an Individual Voluntary Arrangement. An IVA is aimed at getting your unsecured debts paid off in a manner that is affordable but it is a formal and legally binding solution. An IVA is not easy and requires discipline and we have detailed below both the short term and long term benefits and risks.
- Unsecured debts remaining after an IVA is successfully completed are written off.
- An IVA can protect your residential property but refinancing in year IVA will have to be considered.
- You can exclude business assets if they are needed to facilitate future trading.
- An IVA prevents creditors from taking action or continuing from adding further interest or charges to their debt.
- The payment terms can allow payment breaks and extend the arrangement if there are missed payments but creditors would have to agree these terms.
- If you cannot keep to the terms of the IVA, your IVA could fail when you become liable for the balance owed to your creditors. You could also end up bankrupt.
- Creditors can put forward modifications which are likely to ensure efforts are made to introduce equity in property or surplus assets are sold and the funds are introduced.
- The IVA can fail if you do not keep to the terms. Creditors will then pursue you for the balance and any interest that had previously been frozen by the IVA.
- Creditors could refuse to extend credit to your business post approval of the IVA.
The Business Debt Advisor is part of The Debt Advisor Ltd which is regulated by The Financial Conduct Authority. This means we are able to offer advice and deliver both formal and informal solutions. IVA’s do need to be carefully considered and you must take independent advice. Your credit rating will be effected for up to 6 years after the IVA is approved. We hope that the information on this site including Frequently Asked Questions, will help inform you.
The Business Debt Advisor Enquiry Line 0800 0851 825
Open Monday to Friday 9.00 am to 8.00 pm
Open Saturday 9.00 am to 1.30 pm