How do creditors react to IVAs?

Once a person has decided to apply for an IVA it is not unusual for them to question whether they've they made the right decision and wonder what the consequences of that decision might be.

Opting for an IVA is never an easy decision to take, even when it is undoubtedly the correct one.

One of the most common concerns people have relates to how their creditors will react to their IVA.

Creditors understand IVAs

Over the past decade the numbers of IVAs have been growing year on year.

According to the national archives, in 2001 there were 6,298 IVAs undertaken across the whole of England, Wales and Northern Ireland. In 2013 this number had risen to 48,764 IVAs.

To help the industry cope with these huge increases, creditors and insolvency professionals agreed to standardise parts of the IVA process and improve the levels of communication between all parties.

As a result of these huge rise and the improved the levels of communication between all parties, it'll be no surprise to learn that creditors are very familiar with the IVA process and how it works.

Introduction of the IVA Protocol

In February 2008, the IVA protocol was introduced, bringing with it major improvements in creditor attitudes towards IVAs and the IVA applicants themselves. Nowadays, most creditors have departments that deal specifically with IVA applications and they are generally respectful of the IVA process.

Once they become aware that a client is in the process of applying for an IVA, they tend to suspend any action and await notice of the Creditors' Meeting. They generally accept that no progress can be made until the outcome of the meeting is known.

Protection from creditors

Most creditors will be prepared to wait for the outcome of the Creditors' Meeting but when a creditor refuses to wait, your Insolvency Practitioner can apply for legal protection via an Interim Order, a Court Order which blocks the continuance of any recovery action.

Once your IVA has been approved at the Creditors' Meeting your creditors are no longer allowed to contact you directly regarding your outstanding debt.

They also forfeit the right to take legal action against you for the recover of the debt once the IVA has been accepted.

Dealing with creditors calls

For a period of about 3 weeks, whilst in the initial set up phase, your creditors may remain unaware you're applying for an IVA. During this period, especially if you have stopped paying your contractual payments, creditors could legitimately call you to find out what's happening and this may make you feel quite vulnerable.

Creditor calls can be an unpleasant experience and can cause real stress, but there are some golden rules which you can use to keep control of the situation.

If you have managed to maintain your commitments pretty much as normal, before opting to apply for an IVA, then it's likely your creditors will still be dealing with your debt.

However, the longer you have been experiencing payment problems, the more likely it is that your creditors will decide to pass your debt to a specialist Debt Collection Agency, or DCA.

Creditor and DCA calls

If a creditor or DCA calls you:

  • Stay calm and be polite, even if the person on the other end of the phone is being rude to you.
  • Take the name of the caller and the name of the creditor concerned and keep a log of your conversations.
  • Give the name, address and telephone number of your Insolvency Practitioner and provide a reference number if you have one. Explain that you're in the process of proposing an IVA and ask them to contact your Insolvency Practitioner for any further information.
  • Keep your call courteous, short and to the point. Also try to avoid being engaged in a conversation about your IVA payments.
  • If you are losing control of the call, explain that now is not a good time to discuss your financial situation and ask them to call back another time and, if necessary hang up.

Debt Collection Agencies

Things to remember about Debt Collection Agency calls:

  • The person who calls you may not actually fully understand what an IVA is. Quite often they will know only a little about the process and can, therefore, be misinformed of your rights.
  • It is common practice for DCAs to pay commission to their staff based on the payments they collect over the telephone, which can encourage some callers to be aggressive.
  • The person on the end of the phone will not be making the judgement on your IVA. As a result, any threats they give, such as - "We will not accept your IVA unless you make an immediate payment" are to be ignored or, at the very least, taken with a pinch of salt.

Making token payments

The one thing all creditor and DCA callers want is a payment.

When the IVA has been agreed, your payments will be provided through the IVA, but in the period before the Creditors' Meeting has been held they can become frustrated by the lack of payments being received.

So, to defuse the situation and to 'buy' yourself and your IVA some time, it is permissible to make a token payment to a creditor if they call.

A token payment is a substantially reduced payment compared to the normal contractual payment for any given creditor. The size of the token payment should be in ratio to the size of a particular creditor's debt in relation to your total debt and your proposed IVA payment.

For example: If one creditor is owed 50% of your overall debt, then a token payment to that creditor should be equal to about 50% of your proposed IVA payment.

Professional IVA Advice

If you would like to receive further information on how an IVA could be tailored to suit your personal circumstances, please call IVA.info on 0800 088 7502.

There's no charge for a consultation, there's no obligation and your enquiry will be held in the strictest confidence.

Alternatively, complete this form and we'll call you at your preferred time.

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