Celebrities and people in the public eye seemingly all turn to bankruptcy to deal with their debt problems, but bankruptcy isn’t the only answer. We take Sarah Ferguson, Duchess of York, and use her as an example of how an IVA could help her manage her debts.
Sarah Ferguson, Duchess of York, has been in the newspapers again this weekend because of her debt problems.
Her recent attempts to make money in order to pay off her debts were well documented, as was her appearance on the Oprah Winfrey show on US television. Now it’s being reported that she is facing bankruptcy because of her business debts. Some sources have suggested that all her personal debts have been paid off, but if this wasn’t the case, could an IVA ( Individual Voluntary Arrangement ) be a viable debt solution for her?
As a company who have helped many people manage their debts with an IVA or Debt Management Plan, we decided to look at how an IVA would work for the Duchess of York.
What is an IVA?
If you’re unfamiliar with IVAs, in short, they are a formal (and legally binding) arrangement between the individual in debt and the people who are owed money. Based on the individual’s income and outgoings, an agreement is put in place for them to pay back what they can afford to over a set period of time (usually 5 years). After this period any outstanding debts will be written off.
What are the steps involved in proposing an IVA?
For the Duchess of York, or indeed anybody who wanted a solution to their debt problems, our first step would be to get a full analysis on the amount of debts owed, income, outgoings and any assets, including cars, jewellery and property.
Will you lose all your assets in an IVA?
It’s unlikely Sarah Ferguson’s personal belongings would be taken from her in an IVA, but in most cases we advise clients to include very valuable assets such as a luxury car as part of the offer made to creditors (the people owed money). We advise this because:
- If you were to be made bankrupt, such items would automatically be required to be sold by the Official Receiver. Her IVA is unlikely to be agreed by her creditors unless it gives them a better return than in bankruptcy.
- As part of the IVA proposal, the person in debt would be legally required to make a full and honest disclosure of all their assets. If a creditor saw she had a luxury item she was not prepared to include and did not have a good reason (for example, sentimental value ) they may not support such a proposal. As someone in the public eye, it certainly wouldn’t go unnoticed if she continued to drive a luxury car.
- It’s very unusual for an ordinary person with ordinary cars, computers, non-antique furniture, etc to be asked to part with any asset like this. But you have three Ferraris in a garage, prepare to settle for a Ford instead.
Agreeing a payment plan in an IVA
Once all her financial details had been checked and verified, a detailed financial “healthcheck” or review would be conducted in order to agree a reasonable debt repayment plan enabling her to live sensibly whilst keeping up with her payments.
If she agreed to the payment plan, the next step would be to get her creditors to agree to the proposal. In order for the IVA to be approved 75% of her creditors (based on the value of debts owed to them) would have to vote for the proposal.
If agreed, all her individual debt repayments would be combined into just one payment and any interest on her debts would be frozen. This in particular could be very beneficial to her if we are to believe the reports which claim she’s millions of pounds in debt.
Finally, the Duchess would have a review of her IVA at least once every year to allow for any changes in her financial circumstances. The rest would be up to her – to maintain her repayments and adapt her lifestyle appropriately for the full IVA period.
Is an IVA a good alternative to Bankruptcy?
Do you think an IVA could work for someone in the public eye with debts? The media tends to highlight celebrities who opt for bankruptcy and this could make the process of bankruptcy seem like the best option for people in debt, when really there are many advantages of an IVA over bankruptcy. Also, do you think people in the public eye, who have debt problems, have a moral responsibility to repay as much as they can afford? Take our poll:
If you think an IVA could help you with your debts, complete our online debt analyser now and one of our advisors will be in touch to help you find out if an IVA is the best option for you.