An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement available to residents of England, Wales, and Northern Ireland. It is set up between you and your creditors, allowing you to repay your debts over a fixed period, usually five to six years. Once the IVA ends, any remaining debt is written off.

Since an IVA is approved by the court, your creditors must stick to its terms. During the IVA, creditors cannot pursue you for repayments or charge interest on your debts. All communications with your creditors will be managed through an Insolvency Practitioner (IP) or a debt management company. You will be required to make regular payments, either monthly or as a lump sum.

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How does an IVA work?

IVAs are arranged by qualified Insolvency Practitioners. You will agree on a repayment plan with your IP, and once the IVA begins, you will make your payments to them. The IP will retain a portion of the payments for their fees, and the remaining amount will be distributed among your creditors.

Your IP will review your finances annually. If your financial circumstances improve, such as receiving a pay rise, you will be expected to increase your payments. Therefore, it’s important to inform your IVA provider about any increases in your income or any additional funds you receive, such as an inheritance.

During the IVA, you cannot take out new credit exceeding £500 without your IP’s permission.

What debts can be included in an IVA?

Various types of debts can be included in an IVA, such as:

  • Personal loans
  • Council tax arrears
  • Payday loans
  • Utility arrears (e.g., electricity and gas)
  • Credit cards
  • Overdrafts
  • Catalogue debts
  • Income tax and National Insurance arrears
  • Debts to family and friends
  • Benefit or tax credit overpayments
  • Store cards
  • Other outstanding bills, like invoices for home repairs

However, certain debts cannot be included in an IVA, including:

  • Mortgages and secured loans
  • Student loans
  • Magistrates’ court fines
  • Child support arrears
  • Social Fund loans
  • Court-ordered maintenance arrears

You will need to manage these excluded debts separately and ensure you have sufficient funds to pay them alongside your IVA payments.

What are the different types of IVA?

In addition to standard IVAs, there are variations tailored to specific situations:

Interlocking IVAs

If you have joint debts with another person, such as a spouse or partner, an interlocking IVA might be suitable. While standard IVAs cover only one person, interlocking IVAs connect individual IVAs for both parties. Consult your IP for more information.

Self-employed IVAs

For those who are self-employed, a self-employed IVA offers more flexibility than a standard IVA. Monthly payments can vary to reflect fluctuating incomes, as long as the agreed total amount is contributed over the course of each 12-month period. Additionally, you can prioritize certain creditors if you need to pay them in full in order to continue trading.

Is an IVA right for me?

Before deciding on an IVA, it’s essential to be fully informed. Our debt advisors can provide comprehensive information about available debt solutions and their eligibility criteria, including the risks contained in each solution.

You might be eligible for an IVA if:

  • You reside in England, Wales, or Northern Ireland.
  • You have debts of at least £6,000.
  • You owe money to two or more creditors.
  • You are insolvent, meaning you cannot repay your debts.

An IVA may be a good option if you have a stable income but struggle with ongoing debt repayments. You must be committed to making timely repayments and be transparent with your IP about your financial situation throughout the IVA.

Successfully completing the IVA could free you from debt within six years, allowing you to rebuild your finances.

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Advantages

  • An IVA may result in a significant portion of your debt being written off.
  • One affordable monthly payment each month.
  • Protection from bailiffs and other legal action.
  • Creditors can only communicate with the Insolvency Practitioner (IP).
  • No additional interest or fees will accrue.
  • The IVA is a legally binding agreement, providing security.
  • Major assets, including your home, are generally protected.

Disadvantages

  • Entering an IVA will negatively impact your credit rating and will remain on your credit file for six years from the start date.
  • There is no guarantee that creditors will agree to your proposed IVA plan.
  • An IVA only applies to those unsecured debts included in the plan.  Excluded debts will still require payments.
  • Entry into an IVA is recorded on the public Insolvency Register, revealing your name.
  • Non-compliance with the terms allows creditors to resume collection activities.
  • You must adhere to a strict budget for daily expenses throughout your IVA.
  • You might need to release home equity. If this isn’t possible, the duration of your IVA could be extended.
  • An IVA may attract higher interest rates for remortgaging.

For more information on managing debt and free debt advice, visit MoneyHelper or explore more options for paying off your debt with MoneyPlus

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