Even the idea of making an application for a formal type of insolvency, such as an Individual Voluntary Arrangement (IVA) will fill many chartered accountants with dread. This fear isn't helped by misconceptions about what an IVA is, what it entails and the impact that entering into one will have on ICAEW membership.
The aim of this blog is to dispel some of the myths and help you come to an informed choice as to whether one is right for you.
What is an IVA?
You will likely have encountered them from cold callers advising you that new government legislation exists that will write off most of your debts. If it sounds too good to be true, it is - the "new" legislation they refer to is actually over thirty years old!
An IVA is a formal arrangement between you and your creditors to pay off unsecured consumer debt. They tend to last for 5 years and if you have equity in your property, you will usually have to release this in the final year of your IVA. At the end of the IVA, the remaining debt is then written off.
You will need a licensed Insolvency Practitioner to manage your IVA for you. Given how important an IVA is, you should do your research into which IVA firm to use rather than using the first firm that cold calls you. Debt Camel has a useful guide on choosing the right IVA firm for you available here.
When would an IVA be right for you?
In order for an IVA to be successful, you will need to have enough available income to make regular monthly payments to your creditors. Therefore if you are presently out of work or you are retired, you may wish to consider another option. If you are self-employed and run your own accountancy practice, you may be concerned that your income fluctuates and you may not be able to make the payments outside of the busy tax season. However, you could set up an IVA with flexible payments that reflect your income being lower at certain points of the year.
In some cases, bankruptcy can be preferable to an IVA. This may not be the case if you are actively employed in the profession, but for retired people, spouses and partners who are not working as accountants may wish to consider this. A bankruptcy cannot fail and will usually only last for a year, and so if you would like a fresh start this may be more appropriate for you. However, if you have an asset that you would like to protect such as a property, an IVA will better suit your needs than making an application for bankruptcy.
Another alternative to an IVA is a Debt Management Plan (DMP). This works similarly to an IVA in that you would be making monthly payments to your creditors, but unlike an IVA this is not a formalised agreement. An IVA does have some benefits that a DMP does not such as a fixed end date for payments and a guarantee of no interest being added, but a DMP would allow more flexibility and has less of an impact on your credit score. A DMP is also not entered onto the Insolvency Register.
What effect would an IVA have on your ICAEW membership?
The main difference between an IVA and bankruptcy is that an IVA will not result in the automatic loss of your ICAEW membership and therefore for many chartered accountants this will be the preferred option. With that said, entering into an IVA would create a liability to disciplinary action and you should report this to the ICAEW.
The ICAEW's Investigation Committee will investigate the matter and monitor your arrangement. Provided that there are no aggravating features such as a refusal to co-operate with ICAEW or fraudulent activity, it is unlikely that entering into an IVA would result in a loss of your ICAEW membership. ICAEW will likely ask you to cover the costs of their investigation, but they may agree to defer payment of the costs until your IVA has been completed.
A DMP could potentially create a liability to disciplinary action, but there is no automatic referral process to the Investigation Committee.
How CABA can help
CABA supports the wellbeing of past and present ICAEW members, ACA students, ICAEW staff members, and their spouses, partners and children up to the age of 25. For advice, information and support please:
Written by: Paul Day
CABA Support Officer
Paul Day is one of CABA’s debt support officers, providing assistance and support to Chartered Accountants in financial difficulty. He is a certified member of the Institute of Money Advisers, having completed his certificate in Money Advice Practice in 2013.