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Can I Do an IVA If I Am Self Employed?

September 21, 2011 | Comments: 0 | Views: 221

We consider whether you can use an IVA to resolve your debt problem if you are self employed and the main issues you will need to think about. If you are self employed you can certainly use an individual voluntary arrangement (IVA) to resolve a personal debt problem. In fact, the IVA was originally introduced into the law as a solution specifically designed for people who are running businesses.

However the fact that you are self employed means that before you can start the IVA application process, there are some things that have to be more carefully considered than if you were simply an employee.

Sustainable income

The first and most important thing to understand is that to make an individual voluntary arrangement work, you must be able to make sustained payments to your creditors each month normally for five years. As such, you must be as sure as you can be that your business can pay you an income that will cover both your reasonable living expenses and give enough to cover your reasonable IVA payment. Because you will normally not be receiving wage slips, you will have to prove your income by providing a history that your business has been trading (your last one or two year's accounts) and a cash flow forecast for the next 12 months.

The important thing here is your cash flow forecast. This shows the cash you will have coming into your business. It must also show that the drawings you plan to take from your business each month are sufficient to support your living expenses needs and your IVA payment.

What debts are included?

As a sole trader, you are likely to have some personal and some business related debts. As you are personally responsible for any business debts that you have, these will normally all have to be included in your IVA. This includes business credit card and overdraft facilities which you will then no longer be able to use. Of course including these creditors in your IVA could be potentially damaging for your business so this has to be very carefully considered and planned.

If you owe money to HM Revenue and Customs (HMRC) then this debt must also be included in your IVA. In fact, because HMRC will normally not allow debts owed to them to be included in a debt management plan (DMP), starting an IVA may be one of the only ways to prevent HMRC petitioning for your bankruptcy due to unpaid tax debt.

Banking facilities

If you owe money to the bank where you keep your business account, then it is likely that you will have to change your bank to protect your funds. This is because when your bank realises that you owe them money that you cannot repay, they may well become concerned about the viability of your business and withdraw any overdraft and credit card facilities you have on your business account.

In addition, the bank can apply the right of offset across your business and personal account drawing money from one to pay the debts in another if there is no other source of funds. If you already have a poor credit rating, then opening a new business trading account may not be easy. Where this is the case you may have to open two new personal accounts and use one for your business affairs.

Just started trading

If you have only been trading your business for a short while, the problem is that you will not have any historic trading information to prove to yourself and your creditors that your business is likely to be able to sustain you and your IVA payment. If your business case and cash flow forecast is very strong, then you may still be able to start an IVA straight away. However, it might be more sensible to delay your IVA application until you have some trading experience under your belt.

In these circumstances, you should perhaps start a debt management plan initially to give yourself some breathing space from your creditors and time to get your business up and running. You can then change from your DMP into an IVA perhaps after six months once you are comfortable that your business and the income it generates are sustainable.

What to do next

If you are struggling with debt and are considering an IVA, visit Our experts are available to speak to you about the IVA problem and offer further help and advice. Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems and have been through the IVA process themselves. Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

James Falla is an expert debt advisor from For more quality and confidential information on IVA's (Individual Voluntary Arrangements), visit

Source: EzineArticles
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