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Why creditors receive IVA proposals

An IVA exists to help somebody who wishes to repay their debts but who is no longer in a position to continue to make their full debt repayments without getting into further debt. Creditors understand that not everyone will be able to repay their debts. The primary reason why debts are not repaid is that major aspects of people’s lives change unpredictably. People honestly borrow money expecting to pay it back, but life-events such as redundancy, pregnancy, divorce and ill-health can make this impossible. No matter what checks that the lenders make before lending they cannot forecast such life-changing events that leave clients unable to maintain full debt repayments.

Creditors therefore have to establish processes to work with people when they can no longer manage their debts. One section of these processes is to review IVA proposals when they are put forward to them.

Debt collection difficulties for creditors

The major issue for creditors when they are not being paid in full is that they often have little or no idea why not. Those unable to pay their debts are therefore often bombarded with debt collection phone calls, texts and letters. Many of these contacts can seem aggressive and worrying. In fact they are designed to be aggressive and cause concern; the lenders want the debtor to get in touch with them to understand what the problem is and if possible to arrange some fair mechanism to enable some level of debt repayment to resume.

An IVA proposal deals fully with the problem that creditors have when they do not understand the circumstances of their client. An IVA proposal includes some background description about how the debt difficulties arose, details of other debts that the debtor is also struggling to repay, details of how much the debtor can really afford to repay each month, and details about any assets that might also be used to help repay some of the debts. In short, an IVA proposal provides a full understanding of the debtor’s financial issues to the creditor.

Why a creditor will accept an IVA

Once the creditor understands the full financial circumstances of their client they find themselves in a position to assess whether or not an IVA is both appropriate for their account-holder and also whether it offers them a fair prospect of receiving some level of payment towards the debts owed. If they believe that the debtor simply isn’t in a position to repay their debts in full, that the debtor is doing their best to repay what they can afford, and that the fees of the IVA company that have become involved are fair, it is extremely likely that the creditor will allow the IVA to be put in place.

In fact the major creditors benefit significantly from IVA’s. Without such a mechanism their only chance of recovering the debts will be to continue to use their expensive internal debt collection departments, to sub-contract the collection procedure to an external debt collector, or to sell the debts to a debt purchaser for a small fraction of the full paper value of the debt. With an IVA in place they do not need to engage in such activities and have been provided with a clear indication of the percentage of the money owed to them that they are likely to receive via the IVA.

The major lenders tend to be represented by “voting agents” that review IVA proposals on their behalf. These voting agent companies provide IVA companies with details of their criteria for acceptance or rejection. IVA companies tend to have contact points within the voting agents to discuss difficult or borderline aspects of a particular IVA. Thanks to the awareness of IVA acceptance criteria, and the personal relationships that good IVA companies have with the voting agents, a good IVA company will know with a high degree of certainty whether or not any IVA case will be accepted in advance of putting it forwards.

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