As a sole trader, freelancer or someone trading in your own name, balancing your finances can be tricky when things aren’t going well. Sole trader status offers none of the protection of a limited company, which means your personal finances can suffer as a result of a struggling business and managing debt can be stressful and complicated.
If you are a sole trader who is facing financial difficulty, one potential option to consider is an individual voluntary arrangement (IVA). Proceeding in a sole trader IVA with your creditors could make a real difference to you by giving you some much needed breathing space and allowing you to write off debt you cannot afford to pay.
What is an IVA?
An individual voluntary arrangement is a formal agreement between you and your creditors in which you agree to pay reduced monthly payments towards your debt over a set period. Once that time is up, the remainder of your debts are written off. In an IVA you are permitted to carry on trading, which means you can keep your income throughout the IVA period.
Is an IVA right for me?
An IVA could be the right solution for you if you are struggling to keep up repayments on your unsecured debts. There is no universal £15,000 minimum debt level required by law to enter an IVA. Whether an IVA is suitable will depend on your overall financial circumstances, including your debts, income, expenditure and assets.
On top of debt worries, sole traders have the added concern of the loss of their income should they be forced to stop trading due to unmanageable debt. But if you have a sole trader business, your trade debt is added to any unsecured personal debt – which means that you could qualify for a sole trader IVA.
Self-employed IVA vs bankruptcy
Historically, many sole traders would have filed for bankruptcy if they couldn’t repay their debts – however bankruptcy means the end to trading for most sole traders.
With a sole trader IVA, you can carry on your business and trade out of your debt without the extra worry of the loss of income. What’s more, if you own your own home, this and other valuable assets are better protected in an IVA arrangement.
What are the advantages and disadvantages?
An IVA is a formal, legally-binding procedure, and as with any insolvency procedure, there are a number of pros and cons involved that need to be weighed up so you can decide whether or not it is the right option for you.
Advantages
- Interest on your debts will be frozen
- You may be able to retain assets such as your home
- At the end of an IVA any remaining debts are written off
Disadvantages
- You will need to stick to the budget for your IVA period
- You could be asked to release some equity within your property
- IVAs are likely to appear on your credit file
- If you fail to maintain your payments you could be made bankrupt
How much will I need to repay?
In an IVA, you repay only what you can reasonably afford based on your income, expenditure and circumstances.
The length of an IVA depends on the terms of your individual proposal, so there is no single duration that applies in every case. Once the IVA is successfully completed, any remaining qualifying debts included in the arrangement are written off in line with its terms.
IVA fees will also apply. Your insolvency practitioner should explain these costs and how they are paid before you enter into the arrangement.
How does the process work?
Setting up an IVA is a pretty straightforward process and your IVA supervisor or insolvency practitioner will be able to guide you through each step and communicate with creditors on your behalf.
The IVA Process
Here’s how the process works:
Step one – assessment
Firstly, your situation will be assessed to see whether or not you are eligible to enter into this type of agreement. If you are, an insolvency practitioner will “nominate” you for the IVA.
Step two – proposal
A proposal will then be drawn up based on the information you provide, allowing you to put forward the best offer of repayment you can afford. This offer could be a one-off lump sum payment (also known as a full and final settlement) or regular monthly payments over a fixed period of time.
Step three – approval
A copy of your proposal is then sent to each creditor. Your creditors are asked to vote to accept or reject the proposal, and if more than 75% accept, the IVA is approved and is legally binding for all creditors. At McAlister & Co, over 99% of the agreements drawn up are accepted by creditors.
Step four – payment
Once the IVA is approved, you start to make payments or pay a lump sum as agreed and all phone calls and letters from creditors should cease.
Step five – completion
When all of the agreed payments have been completed, the remainder of the debt will be written off.
How can McAlister & Co help?
If you think a sole trader IVA sounds like the right solution for you, contact McAlister & Co today.
Our sole trader IVA team is friendly, understanding, and efficient, and as experts in IVAs, they can guide you through every step of the process. Just by getting in touch you are taking the first step in dealing with your debt, and your IVA could be set up within as little as six weeks, giving you back your peace of mind.
Frequently asked questions
Can a self-employed person get an IVA?
Yes. A self employed IVA may be available to sole traders, freelancers and other people who work for themselves, depending on their debts, income, expenditure and overall financial circumstances.
Can HMRC and tax debts be included in an IVA?
Certain HMRC debts may be included in an IVA, depending on the type of debt and your circumstances. Your insolvency practitioner can assess your tax liabilities and explain how they may be treated.
How is fluctuating self-employed income assessed?
If your income varies from month to month, your insolvency practitioner will consider your trading history, expected future income and reasonable business and household costs when assessing what you can afford to pay.
Can I continue trading during an IVA?
In many cases, yes. One of the potential benefits of a sole trader IVA is that you may be able to continue running your business while making the payments agreed with your creditors.
What happens if my income falls during an IVA?
If your income falls, you should contact your IVA supervisor as soon as possible. They can review your circumstances and explain what options may be available under the terms of your arrangement.
