An IVA is only available to residents in England, Wales and NI
An Individual Voluntary Arrangement (IVA) is the most popular debt solution available in the UK, and can be an extremely useful way for people with high debt levels to legally deal with debts they can’t afford to repay.
In this guide, we’ll explore Individual Voluntary arrangements in more detail, including how they work, who is eligible for an IVA, and where you can find debt advice and information to help you decide whether an IVA might be right for you.
What is an Individual Voluntary Arrangement?
Lots of people owe money to creditors like banks and phone companies, and it’s not uncommon for this unsecured debt to reach a level where an individual is unable to repay what they owe. This can be extremely stressful, and can even lead to threats of legal action.
An Individual Voluntary Arrangement, more commonly known as an IVA, is a legally binding arrangement between an individual and their creditors which allows them to repay their debts via a series of affordable monthly payments.
Available in England and Wales, an IVA transforms all your unsecured debt – like credit card debts, payday loans, and unpaid energy bills – into a single monthly payment that’s based on what you can afford, and allows you to write off the unsecured debts you can’t afford. It’s important to note, only debts included in the arrangement will be written off at the end of the term.
How do IVAs work?
If you enter into an IVA, you will work with an Insolvency Practitioner (IP), a debt professional licensed by the Insolvency Practitioners Association, who will act as an administrator for the arrangement.
Your IP will help you draft a proposed repayment plan based on your affordability. If your creditors do agree to the plan, you will make one monthly payment towards your debts for as long as your IVA lasts – typically five or six years. Your IP will ensure that the money you pay in is distributed fairly amongst your creditors.
At the end of your IVA, any remaining debts that haven’t been covered by your monthly payments will be written off by your creditors.
It’s important to note that IVAs are only suitable for dealing with unsecured debts. If you have secured debts, like a mortgage for example, you should continue to pay it alongside your IVA.
It’s not unheard of for people to write off 60, 70, or even 80% of their unsecured debt using an IVA.
Am I eligible for an IVA?
To be eligible for an Individual Voluntary Arrangement, you need to meet the following criteria:
- Have £7,000 or more of unsecured debt
- Owe money to two or more creditors
- Live in England or Wales
You should also have a relatively steady income, which would allow you to make a payment of at least £110 per month towards your debts.
If you are eligible for an IVA, the arrangement will allow you to freeze interest and charges on your debts, help relieve the pressure creditors are placing on you, and write off your unaffordable debts once you reach the end of your payment term.
How do I apply for an IVA?
If you’re having money trouble and are looking to apply for an IVA, you should follow the steps below.
Seek free debt advice
Before you apply for an IVA or rush into any sort of financial agreement, you should seek advice from professionals in the debt sphere.
There are several debt charities, like the Money Advice Service, who will offer free advice on your situation. You can also talk to debt management companies, like IVA Plan, who specialise in debt advice as well as administering solutions like IVAs.
Work with an Insolvency Practitioner
The next step in the application process is to work with an Insolvency Practitioner. IVA providers will typically employ their own Insolvency Practitioners, or have partnerships with IPs willing to take on your case.
Once you begin working with an Insolvency Practitioner, they will help you build your IVA proposal – the proposed agreement to repay your creditors, including how much you can afford to pay towards your debts each month based on your income and expenditure.
Send your IVA proposal to creditors
Once your IVA proposal has been drafted, your Insolvency Practitioner will send the proposal to all your creditors, who will then be given time to consider it and vote on whether they approve of the draft agreement.
If a majority of your creditors agree to the terms of the arrangement as laid out in your proposal, your IVA will be approved.
Begin making monthly payments
Once your IVA is approved by your creditors, you will be asked to read over the arrangement and sign the proposal document. That’s when your payments will begin.
A monthly payment will be taken from your designated bank account at the same time each month for the length of the agreement. As long as you keep up to your side of the arrangement, the unsecured debts included in your IVA will be completely cleared by the time the IVA closes.
Here's an example of how we can help.
Let's say you owe...
|Pay Day Loan||£1,989.00|
|Debt Collection Agency||£380.16|
|Short Term Loan||£243.88|
Total amount owed: £19,256.57
Customer monthly repayments before and after an IVA.
Example case completed in 2023. Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.
Can creditors refuse an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) can only be pushed through if the majority of your unsecured creditors agree to the terms set out in your IVA proposal – a majority is usually considered as 70%.
If a majority of your creditors don’t accept your proposal then your IVA can be refused, but it’s highly unlikely you will be put forward by your Insolvency Practitioner unless they have a degree of confidence your IVA will be approved.
What may happen is your IVA is approved subject to modifications. Having your proposal modified doesn’t mean it’s going to be rejected, however. In fact, it’s a good indicator that it’s going to be approved as long as the creditor requests are met.
Will an IVA affect my credit rating?
Like all debt solutions, use of an IVA will be listed on your credit file – a document maintained by credit reference agencies, which details your financial history.
Because debt solutions signal to lenders that you are, or have been, an unreliable borrower, an IVA will lower your credit rating initially, making it more difficult for you to do things like obtain credit or open certain bank accounts.
The good news is the damage to your credit rating will only be temporary. After six years, details of your IVA will be removed from your credit report, your debts will be cleared, and you’ll be in a better position to build upon your credit score.
If you’re a resident of England, Wales or Northern Ireland and struggling with unsecured debts, an IVA could be a positive way to manage what you owe.
It’s important to be aware of the advantages of an IVA when considering the best debt solution for your circumstances, such as:
- All creditors are bound by your IVA once approved.
- Creditors can’t take legal action against you in an IVA.
- Interest and charges on your debts are frozen by law.
- All IVA payments are based on what you can afford.
- Your IP will distribute payment to creditors on your behalf.
- You may get a payment break if your situation changes.
- You won’t have to sell your home in an IVA.
As with any debt solution, it’s important to consider potential disadvantages before making any final decision on which is the best for you.
When you’re considering entering an IVA, it’s important to be aware of the following:
- If you are a homeowner and your property has equity in it, you’ll need to try to re-mortgage which could result in an increased interest rate. If you can’t remortgage you could face a 12 month extension to your arrangement.
- Your credit rating will be affected adversely.
- Only the unsecured debts included in your IVA will be written off at the end of the agreement.
- Your IVA will be recorded on a public register.
- If your IVA fails you could be at risk of bankruptcy.
- Your financial freedom might be restricted.
- Your creditors need to agree to the IVA.
What happens if an IVA fails?
An IVA is a legally-binding agreement which enters you into a binding contract with your creditors, so an IVA can fail if you do not stick to the IVA terms.
The most common reason an IVA fails is if you fail to keep up with your monthly repayments. You will be offered a degree of leniency if you’re late with a payment, but repeatedly failing to make payments towards your debts can result in IVA failure.
If your IVA fails, you will receive a failure report from your Insolvency Practitioner detailing the reasons for the failure, after which the agreement will end. You will no longer be part of an active repayment plan, so you will need to find another way to repay what you owe.
It may be possible for you to reach out to your creditors and reach an agreement over another form of debt management plan, but it’s also possible your creditors will petition to have you made bankrupt due to your breaching of the IVA agreement.
Where can I find out more about Individual Voluntary Arrangements and other debt solutions?
No matter how many creditors you’re indebted to, if you’re struggling to repay what you owe and are being put under pressure to come up with the money, it’s crucial that you seek reliable debt advice.
IVA Plan is a specialist debt management company and one of the UK’s leading IVA providers. We have years of experience in helping people deal with their debts through IVAs and other debt solutions.
If you’re interested in an IVA as an option, or just need some sound debt advice, then talk to one of our friendly advisers today.