What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between you and the people you owe money to. It’s available in England, Wales and Northern Ireland. You agree to pay back what you can realistically afford — usually in fixed monthly instalments over five to six years — and, provided you keep to the arrangement, any remaining unsecured debt included in it is written off at the end.
Because it’s a formal insolvency solution, an IVA has to be set up and supervised by a licensed Insolvency Practitioner. That gives it real legal weight: once it’s approved, the creditors included are bound by it, even those who would rather have pursued you individually.
How does an IVA work, step by step?
The process is more straightforward than many people expect:
- Review. An Insolvency Practitioner looks at everything you owe, your income, and your essential living costs, to work out what you can genuinely afford each month.
- Proposal. They put a formal proposal to your creditors, setting out the monthly payment and how long the IVA will run.
- Creditor vote. Creditors vote on the proposal. If those representing 75% of the debt (by value) that votes agree, the IVA is approved and becomes binding on all included creditors.
- Payments. You make one affordable monthly payment, which is shared among your creditors. Interest and charges on included debts are normally frozen.
- Completion. At the end of the term, if you’ve met the terms, the remaining included debt is written off.
Who is an IVA suitable for?
An IVA tends to suit people who can afford a regular monthly contribution but couldn’t clear their debts in a sensible timeframe. It often works best if:
- You have a meaningful amount of unsecured debt (commonly several thousand pounds) across more than one creditor.
- You have a fairly stable income and can commit to regular payments.
- You want legal protection from the creditors included, and a definite end date.
- You want to avoid bankruptcy — perhaps to protect your home or a job that bankruptcy could affect.
It’s a big commitment. An IVA usually runs for five to six years and affects your credit file for six years from the date it starts. It’s worth getting proper advice so you go in with your eyes open.
How much does an IVA cost?
There are fees involved in setting up and running an IVA, which cover the Insolvency Practitioner’s work. In most cases these fees are built into your agreed monthly payment rather than charged separately upfront — so you make one payment, and the fees come out of what your creditors receive. Your adviser should explain the fees clearly before you commit.
What happens to my debts and my credit file?
Included unsecured debts are frozen and, on successful completion, written off. Your credit rating will be affected, and the IVA is recorded on your credit file for six years from the start date, as well as on the public Individual Insolvency Register while it’s active. Your ability to get credit will be affected for the medium to long term.
Weighing it up
Potential benefits
- One affordable monthly payment based on what you can spare
- Interest and charges on included debts are usually frozen
- Legal protection from included creditors while you keep to the terms
- Remaining included debt written off on completion
- Not usually advertised publicly like bankruptcy can be
Things to consider
- A long-term commitment, usually five to six years
- Affects your credit rating for six years from the start
- Recorded on the public Individual Insolvency Register
- Fees apply (normally within your monthly payment)
- Homeowners may be asked to release equity near the end
Frequently asked questions
Is an IVA the same as bankruptcy?
No. Both are formal insolvency solutions, but an IVA is an arrangement to pay what you can afford over a set period, after which remaining included debt is written off. Bankruptcy is a separate process with different, often more serious, consequences. An IVA is frequently used specifically to avoid bankruptcy.
How much debt do I need for an IVA?
There’s no fixed legal minimum, but IVAs generally make sense where you owe a meaningful amount of unsecured debt across more than one creditor. Advice will help you work out whether it fits your situation or whether another option is better.
Will an IVA affect my credit rating?
Yes. An IVA affects your credit rating and stays on your credit file for six years from the date it starts. Your ability to obtain credit will be affected for the medium to long term.
What happens if my IVA fails?
If you stop paying and the IVA fails, the remaining debts will not be written off, and creditors may resume action against you, which could include bankruptcy. This is why it’s so important to only enter an IVA that is genuinely affordable, and to get advice first.
Can I keep my home in an IVA?
An IVA doesn’t automatically put your home at risk in the way bankruptcy can, which is one reason homeowners often prefer it. However, you may be asked to release some equity from your property towards the end of the arrangement if you’re able to. Your adviser will explain how this would apply to you.
Can I include all my debts in an IVA?
Most unsecured debts can be included, such as credit cards, personal loans, overdrafts and catalogues. Some debts can’t be included, such as certain court fines and secured debts like your mortgage. Advice will confirm which of your debts would be covered.
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