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An Individual Voluntary Arrangement (IVA) is a formal process primarily used in Scotland as an alternative to bankruptcy.
Answer: False
An Individual Voluntary Arrangement (IVA) is a formal process established in England and Wales, not Scotland. In Scotland, a protected trust deed serves a similar purpose.
An IVA is a formal process in England and Wales that allows individuals to propose a repayment plan to creditors, serving as an alternative to bankruptcy.
Answer: True
This statement accurately defines an Individual Voluntary Arrangement (IVA) as a formal process in England and Wales, offering an alternative to bankruptcy by enabling debtors to propose a repayment plan to their creditors.
The Insolvency Act 1986 governs Individual Voluntary Arrangements (IVAs) in Scotland.
Answer: False
The Insolvency Act 1986 is the primary legislation governing insolvency proceedings, including IVAs, in England and Wales. Scotland has its own distinct insolvency legislation.
Individual Voluntary Arrangements typically cover the claims of secured creditors.
Answer: False
Individual Voluntary Arrangements (IVAs) primarily cover unsecured creditors' claims. Secured creditors' rights and claims are generally not affected by an IVA unless specifically agreed otherwise.
An IVA is considered a discretionary agreement rather than a legally binding contract.
Answer: False
An IVA is a legally binding contract between the debtor and their creditors, established once approved by the required majority of creditors.
Individual Voluntary Arrangements (IVAs) were originally designed to provide relief for consumer debts.
Answer: False
Individual Voluntary Arrangements (IVAs) were originally intended to address debts arising from business insolvency, not consumer debts.
Since the late 1990s, IVAs have increasingly been used for non-business-related consumer debts.
Answer: True
The application of IVAs has shifted significantly since the late 1990s, with a notable increase in their use for managing non-business-related consumer debts.
The Insolvency Act 1986 is the primary legislation governing insolvency proceedings in Scotland.
Answer: False
The Insolvency Act 1986 governs insolvency proceedings in England and Wales. Scotland has its own separate legal framework for insolvency.
What is an Individual Voluntary Arrangement (IVA)?
Answer: A formal process in England and Wales allowing individuals to propose a repayment plan to creditors as an alternative to bankruptcy.
An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement in England and Wales that allows individuals to propose a repayment plan to their creditors, serving as an alternative to bankruptcy.
Which piece of legislation governs IVAs in England and Wales?
Answer: Part VIII of the Insolvency Act 1986
Individual Voluntary Arrangements (IVAs) are governed by Part VIII of the Insolvency Act 1986, which provides the legal framework for their establishment and operation in England and Wales.
Which types of creditors' claims does an IVA arrangement typically cover?
Answer: Primarily unsecured creditors' claims.
An IVA arrangement typically encompasses the claims of unsecured creditors. Secured creditors' rights are generally unaffected unless specifically addressed within the proposal.
What is the contractual nature of an IVA?
Answer: A legally binding agreement entered into voluntarily by the debtor and creditors.
An IVA is a legally binding contract that is voluntarily entered into by the debtor and their creditors, establishing a framework for debt repayment.
How has the application of IVAs evolved since the late 1990s?
Answer: They have shifted from business contexts to primarily handling consumer debt.
Since the late 1990s, there has been a notable shift in the application of IVAs, with an increasing prevalence in managing non-business-related consumer debts.
What is the Insolvency Act 1986 primarily concerned with in the context of IVAs?
Answer: Providing the legal framework for insolvency proceedings in England and Wales.
The Insolvency Act 1986 provides the foundational legal framework for insolvency proceedings, including Individual Voluntary Arrangements (IVAs), within England and Wales.
What is the primary legislation governing insolvency in England and Wales?
Answer: Insolvency Act 1986
The Insolvency Act 1986 is the principal legislation that governs insolvency proceedings within England and Wales.
An IVA proposal is presented to creditors directly by the debtor without the involvement of an insolvency practitioner.
Answer: False
An IVA proposal must be presented to creditors through a licensed insolvency practitioner, who acts as the nominee and facilitates the process.
An IVA proposal requires approval from 50% of the value of creditors voting at a meeting.
Answer: False
An IVA proposal requires approval from 75% of the value of creditors who vote at the meeting.
If 'associates' vote on an IVA proposal, it requires approval from 50% of the non-associated creditors to pass.
Answer: True
When associates vote on an IVA proposal, an additional requirement is that 50% of the non-associated creditors must also approve the proposal for it to be accepted.
Only a licensed insolvency practitioner can administer an Individual Voluntary Arrangement.
Answer: True
The administration of an Individual Voluntary Arrangement (IVA) is exclusively handled by a licensed insolvency practitioner, ensuring compliance with legal and regulatory standards.
The nominee's role in the IVA process is to supervise the arrangement after it has been approved.
Answer: False
The nominee's role is to assess the IVA proposal and report to creditors. The supervisor's role is to manage the arrangement after it has been approved.
The Chairman's role at a creditors' meeting is to approve the IVA proposal if they deem it reasonable.
Answer: False
The Chairman's role at a creditors' meeting is to conduct the meeting and manage the voting process, not to unilaterally approve the proposal based on their own judgment.
Debtors in an IVA must comply with reasonable requests from the Supervisor, such as providing bank statements.
Answer: True
Debtors are obligated to comply with reasonable requests from the IVA supervisor, which often includes submitting financial documents like bank statements and payslips to verify their compliance.
The Chairman's role at a creditors' meeting is to approve the IVA proposal if they deem it reasonable.
Answer: False
The Chairman's role at a creditors' meeting is to conduct the proceedings and manage the voting process, not to approve the proposal based on personal judgment.
How is an IVA proposal typically presented to creditors?
Answer: Through a licensed insolvency practitioner.
An IVA proposal is formally presented to creditors by a licensed insolvency practitioner, who acts as the nominee and facilitates the process between the debtor and their creditors.
What percentage of the value of creditors must approve an IVA proposal for it to be accepted?
Answer: 75%
For an IVA proposal to be accepted, it must receive approval from 75% of the value of creditors who vote at the creditors' meeting.
What additional voting requirement exists if 'associates' vote on an IVA proposal?
Answer: 50% of the non-associated creditors must also approve.
If creditors identified as 'associates' participate in the vote, a further requirement is that 50% of the non-associated creditors must also approve the IVA proposal for it to pass.
What is the role of the insolvency practitioner when an IVA is first considered?
Answer: Nominee
When an IVA is first considered, the insolvency practitioner acts as the nominee, responsible for assessing the proposal and reporting to creditors.
When does the insolvency practitioner assume the role of Supervisor for an IVA?
Answer: Once the proposal has been approved by creditors.
The insolvency practitioner transitions from the role of nominee to supervisor once the IVA proposal has been formally approved by the creditors.
What must a debtor do to comply with the Supervisor of an IVA?
Answer: Provide documents like bank statements and payslips periodically.
Debtors must comply with reasonable requests from the IVA supervisor, which typically includes providing periodic financial documentation such as bank statements and payslips.
What is the role of the Chairman at an IVA creditors' meeting?
Answer: To hold the meeting and manage the approval process.
The Chairman's primary role at an IVA creditors' meeting is to conduct the meeting and oversee the process of proposal approval.
What is the role of a licensed insolvency practitioner in an IVA?
Answer: As an adviser, nominee, chairman, and supervisor.
A licensed insolvency practitioner plays multiple crucial roles in an IVA, acting as an advisor, nominee, chairman at creditors' meetings, and supervisor of the arrangement.
What is the purpose of an IVA proposal?
Answer: To outline a plan for repaying creditors over time.
The purpose of an IVA proposal is to present a structured plan detailing how the debtor intends to repay their creditors over an agreed period.
An IVA can only be structured based on the debtor's monthly income.
Answer: False
An IVA can be structured flexibly based on various factors, including capital, income, third-party payments, or a combination thereof, not solely on monthly income.
An income-based IVA typically lasts for a maximum of three years.
Answer: False
An income-based IVA typically lasts for a maximum of five years, though the exact duration is determined by the proposal and agreed upon by creditors.
For homeowners, the term of an income-based IVA can be extended by 12 months to account for property equity.
Answer: True
In cases where a debtor owns property with equity, the term of an income-based IVA can be extended by 12 months to compensate for the equity that cannot be released directly into the arrangement.
An IVA proposal cannot address a debtor's home equity; it must be handled separately.
Answer: False
An IVA proposal can indeed address a debtor's home equity, often through provisions for re-mortgaging or extended payment terms, providing more flexibility than bankruptcy.
A supervisor in an IVA may register a restriction on a debtor's property to prevent any sale or re-mortgage without their consent.
Answer: True
A supervisor can register a restriction on a debtor's property to ensure that any sale or re-mortgage requires the supervisor's explicit consent, thereby protecting the terms of the IVA.
Common modifications requested by major banks for IVA proposals include restricting the debtor from obtaining credit.
Answer: True
Major creditors, such as banks, often request modifications to IVA proposals, including restrictions on the debtor obtaining further credit during the arrangement.
An IVA based on capital means the repayment plan relies solely on the debtor's monthly income.
Answer: False
An IVA based on capital means the repayment plan is structured around the realization or contribution of the debtor's assets, rather than solely on their monthly income.
An IVA based on income means the repayment plan is structured around the debtor's disposable income after essential expenses.
Answer: True
An income-based IVA structures the repayment plan using the debtor's disposable income, calculated after essential living expenses are met, over a specified period.
An IVA proposal often includes provisions for modifying the arrangement if circumstances change.
Answer: True
IVA proposals commonly incorporate clauses that allow for modifications to the arrangement should the debtor's or creditors' circumstances change significantly.
On what basis can an IVA be structured?
Answer: Based on capital, income, third-party payments, or a combination.
An IVA can be structured flexibly, utilizing the debtor's capital, income, contributions from third parties, or a combination of these methods to create a tailored repayment plan.
What is the typical duration of an income-based IVA?
Answer: Up to 5 years
An income-based IVA typically has a duration of up to five years, during which the debtor makes regular payments from their disposable income.
Which of the following is a common modification requested by major banks for IVA proposals?
Answer: Restricting the debtor from obtaining credit.
A frequent modification requested by major banks in IVA proposals is the inclusion of a clause restricting the debtor from obtaining further credit during the arrangement.
What does it mean for an IVA to be 'based on capital'?
Answer: The plan is structured around the realization or contribution of the debtor's assets.
An IVA 'based on capital' signifies that the repayment plan is structured around the realization or contribution of the debtor's assets, rather than being solely dependent on their monthly income.
What is a common modification requested by banks regarding payments in an IVA proposal?
Answer: Payments should increase proportionally if disposable income rises.
A frequent modification requested by banks in IVA proposals is that payments should increase proportionally if the debtor's disposable income rises during the arrangement.
What does it mean for an IVA to be 'based on income'?
Answer: The repayment plan uses the debtor's disposable income over a set period.
An IVA 'based on income' means the repayment plan is structured around the debtor's disposable income, which is paid over a predetermined period after essential expenses are deducted.
What is the purpose of a supervisor registering a restriction on a debtor's property in an IVA?
Answer: To prevent any sale or re-mortgage without the supervisor's consent.
Registering a restriction on a debtor's property serves to prevent any sale or re-mortgage without the explicit consent of the IVA supervisor, thereby safeguarding the arrangement's terms.
What is the minimum return percentage often insisted upon by major banks for an IVA proposal?
Answer: 40 pence in the pound
Major banks commonly insist on a minimum return of 40 pence in the pound for creditors within an IVA proposal.
The return to creditors in an IVA is generally lower than what they would receive in bankruptcy.
Answer: False
Generally, the return to creditors in an IVA is higher than what they would receive in bankruptcy, as IVAs are structured to maximize repayment over a defined period.
IVAs are less popular than bankruptcy for individuals wanting to protect assets like high-equity properties.
Answer: False
IVAs are often more popular than bankruptcy for individuals seeking to protect assets, such as high-equity properties, as they offer more flexibility in managing such assets.
An IVA is considered a private agreement because it is not advertised in local newspapers.
Answer: True
An IVA is considered a private agreement as it is a contract between the debtor and creditors and is not subject to public advertising in local newspapers, unlike historical bankruptcy procedures.
Bankruptcy is no longer advertised in local newspapers, but IVAs are also not advertised at all.
Answer: True
Bankruptcy is now advertised only in the London Gazette, not local newspapers. IVAs are not advertised publicly at all, contributing to their private nature.
The Personal Insolvency Register is primarily used by the general public to research debt statistics.
Answer: False
The Personal Insolvency Register is primarily used by credit reference agencies to update records and by creditors to assess lending risk, rather than by the general public for debt statistics.
Income payments made during bankruptcy typically last longer than those made under an income-based IVA.
Answer: False
Income payments made under an income-based IVA typically last longer (up to five years) than the income payment period in bankruptcy, which is usually limited to three years and often results in lower payments.
An IVA statutorily restricts a debtor from obtaining credit during the arrangement.
Answer: False
Unlike bankruptcy, an IVA does not contain statutory restrictions on a debtor obtaining credit. However, the IVA proposal itself may include clauses that limit or prohibit borrowing.
A discharged bankrupt can legally obtain credit up to £500 without disclosing their status.
Answer: True
A discharged bankrupt is permitted to obtain credit up to £500 without disclosing their bankruptcy status. Beyond this amount, disclosure is generally required.
Bankruptcy typically prevents a debtor from acting as a director of a company.
Answer: True
Bankruptcy generally prohibits an individual from acting as a director of a company or being involved in the promotion, formation, or management of a company without court permission.
An IVA generally carries the same implications for trading as bankruptcy.
Answer: False
An IVA generally has fewer implications for trading and professional activities compared to bankruptcy, which imposes more stringent restrictions on directorships and business dealings.
Creditors might view an IVA less favorably than bankruptcy, believing it shows less debtor commitment.
Answer: False
Creditors may view an IVA more favorably than bankruptcy, as it can demonstrate a debtor's commitment to repaying debts through a structured plan.
Both an IVA and bankruptcy remain on a debtor's credit file for six years from the commencement date.
Answer: True
Both an IVA and bankruptcy are recorded on a debtor's credit file and typically remain there for six years from the date the arrangement or bankruptcy commenced.
A debtor's credit rating typically improves significantly before they consider solutions like an IVA or bankruptcy.
Answer: False
A debtor's credit rating is usually already poor when they begin to consider solutions like an IVA or bankruptcy, as these are typically pursued due to existing financial difficulties.
In bankruptcy, a trustee can force the sale of a debtor's property to realize equity for creditors.
Answer: True
In bankruptcy proceedings, the appointed trustee has the authority to sell a debtor's property to realize any available equity for the benefit of creditors.
The Personal Insolvency Register is primarily used by credit reference agencies to update credit records.
Answer: True
The Personal Insolvency Register serves as a key resource for credit reference agencies to maintain accurate credit records and for creditors to assess financial risk.
The Insolvency Register is a confidential record accessible only to financial institutions.
Answer: False
The Personal Insolvency Register is a public record, accessible to anyone, not a confidential file restricted to financial institutions.
Why might an IVA be popular for individuals wishing to protect certain assets?
Answer: Because assets like high-equity properties are less at risk than in bankruptcy.
IVAs are often favored by individuals seeking asset protection, as assets like high-equity properties are generally less vulnerable to seizure compared to how they might be treated in bankruptcy.
How is an IVA considered a private agreement?
Answer: It is not publicly advertised in local newspapers.
An IVA is considered a private agreement because, unlike bankruptcy which may involve public notices, it is not advertised in local newspapers.
Where are debtors in an IVA or bankruptcy listed publicly?
Answer: The Personal Insolvency Register
Individuals undergoing formal insolvency procedures, including IVAs and bankruptcy, are listed publicly on the Personal Insolvency Register.
How does an IVA differ from bankruptcy regarding statutory restrictions on obtaining credit?
Answer: IVAs do not statutorily restrict credit, whereas bankruptcy has limitations like the £500 rule.
While bankruptcy imposes statutory limitations on obtaining credit (e.g., the £500 disclosure rule), IVAs do not have such statutory restrictions, although the IVA proposal itself may include credit limitations.
What is a key implication of bankruptcy regarding a debtor's professional life?
Answer: It typically prevents the debtor from acting as a director of a company.
A significant implication of bankruptcy is that it generally prevents the debtor from acting as a director of a company or engaging in its management without specific court permission.
How might creditors perceive an IVA compared to bankruptcy?
Answer: As potentially showing more debtor commitment to repayment.
Creditors may view an IVA more favorably than bankruptcy, as it can be perceived as a demonstration of the debtor's commitment to repaying their debts through a structured, proactive plan.
For how long does an IVA typically remain on a debtor's credit file?
Answer: 6 years
An IVA, similar to bankruptcy, typically remains recorded on a debtor's credit file for a period of six years from its commencement date.
What is a significant advantage of an IVA over bankruptcy concerning a debtor's home?
Answer: An IVA offers greater debtor control over their home compared to bankruptcy.
An IVA provides debtors with greater control over their home equity compared to bankruptcy, where a trustee may force the sale of the property to realize funds for creditors.
What happens to a debtor's property equity in bankruptcy?
Answer: It vests in the Trustee who may force a sale.
In bankruptcy, a debtor's property equity generally vests in the Trustee, who has the power to sell the property to generate funds for creditors.
What is the primary use of the Personal Insolvency Register?
Answer: For credit reference agencies to update records and creditors to assess risk.
The Personal Insolvency Register's primary function is to serve as a public record for credit reference agencies to update records and for creditors to assess lending risk.
What is the Insolvency Register?
Answer: A public record of individuals undergoing formal insolvency procedures.
The Personal Insolvency Register is a public record that lists individuals who are involved in formal insolvency procedures, such as IVAs and bankruptcy.
Which statement accurately reflects the difference between IVA and bankruptcy regarding public advertising?
Answer: Bankruptcy is advertised in the London Gazette, while IVAs are not advertised at all.
Bankruptcy notices are published in the London Gazette, whereas IVAs are not subject to any form of public advertising, distinguishing them as private agreements.
What is the typical consequence for a debtor's credit rating after entering an IVA?
Answer: It has a detrimental effect for six years.
Entering an IVA typically has a detrimental impact on a debtor's credit rating, with this effect generally lasting for six years, similar to bankruptcy.
How does the duration of income payments in bankruptcy compare to an income-based IVA?
Answer: IVA income payments are usually longer.
Income payments made under an income-based IVA typically extend for a longer period (up to five years) compared to the income payment period in bankruptcy, which is usually limited to three years.
What is a key difference between an IVA and bankruptcy regarding trading or acting as a company director?
Answer: Bankruptcy restricts directors, while IVAs do not automatically do so.
A key distinction is that bankruptcy automatically restricts individuals from acting as company directors, whereas IVAs do not impose such automatic restrictions.
There are no costs associated with setting up or maintaining an IVA; insolvency practitioners offer their services for free.
Answer: False
Insolvency practitioners charge fees for their services in setting up and maintaining an IVA. These fees are typically paid from the contributions made into the IVA before dividends are distributed to creditors.
The nominee's fee in an IVA is charged for the ongoing work performed by the insolvency practitioner during the arrangement.
Answer: False
The nominee's fee is charged for the work done by the insolvency practitioner up to the point of the IVA proposal being approved. The supervisor's fee covers the ongoing work during the arrangement.
Category 1 disbursements in an IVA can be capped by creditors.
Answer: False
Category 1 disbursements, which include costs directly related to the arrangement and payments to third parties, cannot be capped by creditors.
Category 2 disbursements in an IVA include costs such as business mileage, printing, and postage.
Answer: True
Category 2 disbursements in an IVA encompass costs like business mileage, printing, and postage, which are allocated on a reasonable basis for managing the arrangement.
What are the two main types of fees charged by insolvency practitioners in an IVA?
Answer: Nominee's fee and Supervisor's fee
The two primary types of fees charged by insolvency practitioners in an IVA are the nominee's fee (for work before approval) and the supervisor's fee (for ongoing management).
Which category of disbursements in an IVA includes costs like business mileage and printing?
Answer: Category 2
Costs such as business mileage, printing, and postage are classified as Category 2 disbursements in an IVA, representing allocated operational expenses.
What is the purpose of the nominee's fee in an IVA?
Answer: To compensate the insolvency practitioner for work done before the IVA agreement.
The nominee's fee is intended to compensate the insolvency practitioner for the work undertaken in preparing and proposing the IVA before it is formally agreed upon.
Which of the following is an example of a Category 1 disbursement in an IVA?
Answer: Fees for bonds or search fees paid to third parties.
Category 1 disbursements in an IVA include costs directly related to the arrangement and payments made to third parties, such as fees for bonds or search services.
A debt management plan is typically advised for individuals facing more severe financial difficulties than those who might consider an IVA.
Answer: False
A debt management plan is generally advised for individuals with less severe financial difficulties than those who might require a formal IVA. IVAs are typically for more substantial debt issues.
The business equivalent of an Individual Voluntary Arrangement (IVA) is known as a Company Voluntary Arrangement (CVA).
Answer: True
A Company Voluntary Arrangement (CVA) is the formal insolvency procedure for businesses that mirrors the function of an Individual Voluntary Arrangement (IVA) for individuals.
The primary reason for an IVA to fail is the debtor obtaining new loans during the arrangement.
Answer: False
The most common reason for an IVA to fail is the debtor's inability to maintain the agreed-upon repayment schedule, rather than obtaining new loans.
If an IVA fails, creditors are prohibited from adding interest or charges to the outstanding debt.
Answer: False
If an IVA fails, creditors are typically permitted to add interest and charges to the outstanding debt, often calculated from the date of the creditors' meeting.
A Debt Relief Order (DRO) is typically considered for individuals with higher levels of debt than those suitable for an IVA.
Answer: False
A Debt Relief Order (DRO) is designed for individuals with lower levels of debt and fewer assets compared to those who would typically consider an IVA.
A protected trust deed is the equivalent of an IVA in England and Wales.
Answer: False
A protected trust deed is the equivalent of an IVA in Scotland, not in England and Wales.
If a debtor misses three or more payments in an IVA, the supervisor must automatically initiate bankruptcy proceedings.
Answer: False
Missing payments in an IVA does not automatically trigger bankruptcy. The supervisor typically has discretion and may consider the circumstances before initiating further action.
What is the Scottish equivalent of an Individual Voluntary Arrangement (IVA)?
Answer: A Protected Trust Deed
In Scotland, a Protected Trust Deed serves as the statutory equivalent to an Individual Voluntary Arrangement (IVA) in England and Wales, providing a formal process for debt management.
What is the business equivalent of an Individual Voluntary Arrangement (IVA)?
Answer: Company Voluntary Arrangement (CVA)
The Company Voluntary Arrangement (CVA) is the formal insolvency procedure analogous to an Individual Voluntary Arrangement (IVA), but it applies to businesses rather than individuals.
What is a primary reason for an IVA to fail?
Answer: The debtor's inability to keep up with agreed repayments.
The most frequent cause for an IVA to fail is the debtor's inability to consistently meet the agreed-upon repayment obligations.
What can happen to the debt level if an IVA fails and bankruptcy follows?
Answer: Creditors may add interest and charges from the meeting date to the failure date.
If an IVA fails and bankruptcy is initiated, creditors may be entitled to add interest and charges to the outstanding debt, calculated from the date of the creditors' meeting to the date of failure.
Which debt solution might an advisor discuss for debtors with less serious financial problems than those needing an IVA?
Answer: Debt Management Plan
For individuals experiencing less severe financial difficulties than those requiring an IVA, a Debt Management Plan is often recommended by advisors as a suitable alternative.
Which of the following is NOT typically discussed by an advisor with a debtor considering an IVA?
Answer: Company Voluntary Arrangements
An advisor discussing debt solutions with an individual debtor would typically cover options like Debt Management Plans, Bankruptcy, and Debt Relief Orders, but not Company Voluntary Arrangements, which are for businesses.
What happens if a debtor fails to make payments in an IVA, and bankruptcy is initiated?
Answer: Creditors can claim interest and charges from the meeting date.
If an IVA fails and bankruptcy follows, creditors may be able to claim interest and charges on the outstanding debt from the date of the creditors' meeting.