Whilst there’s a common assumption that IVA’s can’t be entered into if you’re self-employed that thankfully isn’t true.  In fact, on the contrary, IVA’s were first introduced by the Insolvency Act 1986 to help struggling businesses (and especially sole traders) to deal with their debts without having to enter into bankruptcy.

Since then, IVA’s have continued to assist numerous businesses – and, more specifically, the people behind them – to not only avoid bankruptcy but to get debt free within a 5 year period.

How can an IVA help if I’m self-employed?

If you’re self-employed then you might have entered into certain contracts with clients or customers – some of which might entail monthly or quarterly repayments for specific performance or services.  If you suddenly find that you’re unable to meet these obligations then an IVA can certainly help.

By entering into an IVA your chosen insolvency practitioner will deal with all your creditors (or clients) by proposing a set monthly repayment which you’ll then be required to make to your practitioner for onward distribution.  This amount usually includes their own fee for managing the arrangement too (although some can request payment up front, so just ensure you’re clear on this before entering into an IVA).

Your creditors will then be asked to vote on your proposal and provided that 75% agree to accept it then it becomes legally binding on all parties concerned (even if a specific creditor chose not to vote).

Once the IVA has been agreed then your creditors will be prevented from contacting you directly for payment and so all phone calls, correspondence and even home visits will cease with immediate effect.  For many businesses, this is a huge relief in itself since no-one wants the continued stress of having the bailiffs turn up in the workplace.  Not only can it reflect badly on the business from a customer point of view but can also cause concern among staff members who may then start to seek employment elsewhere.

What sort of debts can be included in my IVA?

Strong IVA advice can encapsulate all unsecured debts such as overdrafts, card debts, council tax debts and even personal debts.  For a sole trader, then, all trade accounts and business loans can be included.  When you first see your chosen insolvency practitioner you’ll be asked to provide a comprehensive list of what is owed and to whom.  For this reason it’s advisable to go well prepared and complete with documentary evidence if possible.  The more transparent you can be with your advisor, the better.

Will I be allowed to take out trade credit?

It may be possible to retain one trade account active if you depend on this to trade – however, it’s certainly something you should raise with your insolvency practitioner as your credit may be limited.  You may also be advised to open a new basic bank account, just to ensure that your business cash flow is protected and properly managed, thus preventing you from going into further debt during the IVA period.