An IVA is designed for people who are struggling with unaffordable debt but can afford to make a regular contribution towards what they owe. You make payments based on what you can reasonably afford, and the money is distributed between the creditors included in the arrangement.
Once an IVA has been approved, it is legally binding on you and the creditors covered by it. If you successfully complete the IVA, debts included in the arrangement that remain unpaid are generally written off in accordance with its terms.
However, an IVA is a serious financial commitment and is not suitable for everyone. Before entering into one, you should understand how it works, what it will mean for your finances and whether another debt solution could be more appropriate.
How Does an IVA Work?
An IVA is arranged and supervised by a licensed Insolvency Practitioner (IP).
Your Insolvency Practitioner looks at your financial circumstances, including your income, household expenditure, debts and assets. They then work out what you can reasonably afford to contribute and prepare a proposal for your creditors.
The proposal explains how much you intend to pay and how the IVA will operate. Your creditors then have the opportunity to vote on the proposal.
For an IVA to be approved, creditors representing at least 75% by value of those who vote must agree to the proposal. If the required majority accepts the IVA, it becomes legally binding on the creditors included in the arrangement.
The Insolvency Practitioner then supervises the IVA, collects your agreed payments and distributes the money to your creditors after the applicable fees and costs have been deducted.
How Long Does an IVA Last?
There is no single fixed length for every IVA.
Under the current GOV.UK IVA Protocol a straightforward consumer IVA will normally be proposed for 60 months. Where you have a beneficial interest in a family home of £10,000 or more, the standard term can be 72 months, subject to the protocol's rules.
Other IVAs can have different terms depending on the circumstances and the proposal agreed with creditors.
The important point is that an IVA is designed to last for an agreed period. If you make all the required payments and meet the other conditions of your arrangement, your Insolvency Practitioner can issue a Certificate of Completion.
Who Can Get an IVA?
There is no simple checklist that guarantees you will qualify for an IVA.
An IVA is generally considered for someone who:
- has multiple debts that they cannot realistically repay in full;
- has a regular and sustainable source of income, although the exact circumstances can vary;
- can afford to make a meaningful contribution towards their debts;
- has a financial situation that can be dealt with through an IVA; and
- is not better suited to another debt solution.
The current IVA Protocol indicates that a person suitable for a straightforward protocol IVA will usually have multiple debts of £7,000 or more, regular sustainable income other than State benefits or State pension, uncomplicated assets and insufficient resources to repay their debts in full within the proposed IVA period.
These are guidelines for protocol IVAs rather than a universal legal minimum for every IVA.
Your circumstances need to be assessed individually. Having a particular level of debt does not automatically mean that an IVA is right for you.
What Debts Can Be Included in an IVA?
Many common unsecured debts can be included in an IVA.
Depending on your circumstances, these can include:
- credit cards;
- personal loans;
- overdrafts;
- catalogue debts;
- store cards;
- payday loans;
- Council Tax arrears;
- utility arrears;
- some HMRC debts;
- benefit and tax-credit overpayments;
- debts owed to family or friends; and
- certain other outstanding bills.
Not every debt can be included. Some debts, such as certain court fines, student loans and child maintenance arrears, are normally excluded.
Secured debts such as mortgages are also treated differently because the creditor has security over an asset.
For a more detailed explanation, see our guide to Debts Included in an IVA.
What Happens to Your Debts During an IVA?
Once your IVA has been approved, creditors included in the arrangement are generally prevented from taking action to recover the debts covered by the IVA outside the arrangement.
This can provide significant relief if you are currently dealing with repeated calls, letters or other collection activity.
However, an IVA does not make every debt disappear immediately. The debts remain subject to the terms of the arrangement until you complete it or the IVA otherwise comes to an end.
If you successfully complete the IVA, you receive a Certificate of Completion and debts covered by the arrangement that remain outstanding are generally released in accordance with its terms.
How Much Do You Pay Into an IVA?
Your monthly IVA payment is based on what you can reasonably afford after your normal household expenses have been taken into account.
Your Insolvency Practitioner will look at your income and expenditure and calculate your available disposable income. This is used to determine an appropriate contribution.
Your circumstances are normally reviewed during the IVA. If your income or expenditure changes, your payment may need to increase or decrease depending on the terms of your arrangement.
An IVA should not be based on a payment that you cannot realistically afford. The current IVA Protocol specifically emphasises the sustainability of the arrangement and your ability to make the payments and successfully complete the IVA.
How Much Does an IVA Cost?
There are professional fees associated with setting up and administering an IVA.
These fees are paid from the contributions made into the IVA rather than normally being charged to you as a separate upfront fee. Your Insolvency Practitioner must explain the fees and how they will be paid before you agree to the arrangement.
This means that the amount you pay into an IVA is not necessarily the same as the amount that will be distributed to your creditors.
It is important to understand the proposed fees and the likely outcome for your creditors before agreeing to an IVA.
See our guide to IVA Fees and Costs for more information.
What Happens to Your Home?
Owning a home does not automatically prevent you from getting an IVA, but your property will need to be taken into account.
If you own a property with equity, the IVA proposal will normally need to consider your beneficial interest in the property.
The current IVA Protocol contains specific provisions for homeowners. For protocol IVAs, where there is a beneficial interest in a family home worth £10,000 or more, the standard arrangement can be extended to 72 months where the relevant conditions apply.
An IVA does not automatically mean that your home will be sold, but you should understand exactly how your property and any available equity will be treated before entering into an IVA.
Read our detailed guide to IVAs and Your Home.
What Happens to Your Car?
Your vehicle may also need to be considered as part of your IVA.
Whether you can keep your car and whether its value affects your IVA will depend on your circumstances and the terms of your arrangement.
Car finance can also require special consideration because the finance company may have rights over the vehicle.
See our guide to IVAs and Your Car.
How Does an IVA Affect Your Credit Rating?
An IVA will have a significant impact on your credit file.
The IVA is normally recorded on your credit file for six years from the date the IVA starts. This can make obtaining credit more difficult during the IVA and while the record remains on your credit file.
However, the effect of an IVA needs to be considered in the wider context of your financial situation. If you are already struggling with missed payments and unaffordable debts, your credit history may already be affected.
An IVA can provide a structured route out of problem debt. Once you complete the arrangement, you can begin rebuilding your financial position, although this does not guarantee that your credit score or access to credit will immediately improve.
Read our detailed guide to How an IVA Affects Your Credit Rating.
What Are the Advantages of an IVA?
An IVA can offer several potential benefits if it is suitable for your circumstances.
- You make one agreed payment rather than dealing with multiple creditors individually.
- Your payment is based on what you can reasonably afford.
- Creditors included in the IVA are generally prevented from taking recovery action outside the arrangement.
- Interest and charges on included debts are generally dealt with under the terms of the IVA.
- You can have a clear timetable for dealing with your debts.
- Debts remaining at the end can generally be written off in accordance with the IVA terms.
- An IVA may allow you to avoid bankruptcy, although bankruptcy may sometimes be a more appropriate solution.
For many people, the biggest benefit is the opportunity to replace an unmanageable debt situation with a structured and affordable plan.
What Are the Disadvantages of an IVA?
An IVA is not an easy solution and there are important disadvantages to consider.
- Your credit file will be affected.
- You will have restrictions on obtaining new credit during the IVA.
- You must maintain your agreed payments and cooperate with your Insolvency Practitioner.
- Your income and expenditure will be reviewed.
- Your assets and financial circumstances must be disclosed.
- Homeowners may need to deal with available equity in their property.
- There are professional fees associated with the arrangement.
- An IVA can fail if you do not meet its terms.
- The arrangement is legally binding, so changing or ending it can have serious consequences.
An IVA should therefore be considered as one possible debt solution rather than automatically being the best option for everyone.
See our full guide to the Pros and Cons of an IVA.
Is an IVA a Government Debt Scheme?
No. An IVA is not a Government-backed debt scheme.
IVAs are part of the legal insolvency framework and are governed by legislation and regulatory requirements, but an IVA is arranged and supervised by a licensed Insolvency Practitioner rather than being administered by the Government.
The Government does provide information about IVAs through GOV.UK and the Insolvency Service, including the IVA Protocol and consumer guidance.
Be cautious of claims that describe an IVA as a special "Government IVA scheme" or suggest that the Government will pay your debts. An IVA is a formal agreement between you and your creditors.
What Happens When an IVA Ends?
If you meet all the requirements of your IVA, your Insolvency Practitioner will issue a Certificate of Completion.
Once the IVA has been successfully completed, debts included in the arrangement that remain unpaid are generally no longer owed, subject to the terms of the IVA.
Completion is an important milestone. It means you have fulfilled the requirements of the arrangement and can move forward without the burden of the debts covered by it.
However, the IVA will normally remain on your credit file for six years from its start date, so completing the arrangement does not mean that all evidence of the IVA immediately disappears.
What If I Cannot Afford My IVA Payments?
If your circumstances change and you are struggling with your payments, do not simply stop paying your IVA.
Contact your Insolvency Practitioner as soon as possible.
Depending on your circumstances and the terms of your IVA, it may be possible to reduce your payments, agree a payment break or vary the arrangement.
If an IVA becomes unsustainable, there may also be other debt solutions to consider. The important thing is to get advice before your situation deteriorates further.
See our guide to Can I Cancel an IVA? if you are considering ending your arrangement.
Is an IVA Right for Me?
An IVA can be a suitable solution for someone who has significant unaffordable debts but has enough income or another source of funds to make a realistic contribution towards them.
However, there is no single debt solution that is right for everyone.
Depending on your circumstances, alternatives could include:
- a Debt Management Plan (DMP);
- a Debt Relief Order (DRO), if you meet the eligibility requirements;
- bankruptcy;
- negotiating directly with creditors; or
- another formal debt solution.
The right option depends on your income, expenditure, debts, assets, home ownership and wider circumstances.
The current IVA Protocol itself states that if a protocol IVA is not suitable, another debt solution such as a Debt Relief Order or bankruptcy may be more appropriate, and consumers should be directed towards free debt advice.
Get debt help online or call our FREE Helpline 0800 3688 286 (freephone, inc. all mobiles) for a confidential conversation.
What Is the Process for Setting Up an IVA?
If an IVA appears suitable, the process normally involves several stages:
- Review your finances – your income, expenditure, debts and assets are assessed.
- Consider your options – an IVA should be compared with other available debt solutions.
- Prepare the proposal – your Insolvency Practitioner prepares the IVA proposal based on what you can realistically afford.
- Creditors vote – creditors consider the proposal and vote on whether to accept it.
- The IVA begins – if the required majority agrees, the arrangement becomes legally binding.
- Make your payments – you make the agreed contributions while your Insolvency Practitioner supervises the arrangement.
- Complete the IVA – once you have met the agreed requirements, you receive a Certificate of Completion.
What Should I Do Before Starting an IVA?
Entering an IVA is a major financial decision, so take time to understand how it will affect you.
Before agreeing to an IVA, make sure you understand:
- how much you will pay each month;
- how long the IVA is expected to last;
- what fees will be charged;
- which debts will be included;
- what will happen to your home and other assets;
- how your credit file will be affected;
- what happens if your circumstances change;
- what happens if you cannot maintain your payments; and
- what alternatives may be available.
You should also make sure you are receiving appropriate debt advice and understand the proposal before you agree to it.
Thinking About an IVA?
If you are struggling with debts and want to know whether an IVA could be suitable, the first step is to understand your options.
You do not have to decide on an IVA simply because you are struggling with debt. A proper assessment should consider your whole financial situation and compare the available solutions.
If an IVA is suitable, it can provide a structured route towards becoming debt free. If it is not suitable, there may be another solution that gives you a better outcome.
Get debt help online or call our FREE Helpline 0800 3688 286 (freephone, inc. all mobiles) for a confidential conversation.
IVA: frequently asked questions
Sources and Further Reading
- GOV.UK – Key Facts: Protocol Individual Voluntary Arrangements (IVA)
- GOV.UK – Individual Voluntary Arrangement (IVA) Protocol
- GOV.UK – Individual Voluntary Arrangements
- Citizens Advice – Check What an IVA Is
- MoneyHelper – What Is an Individual Voluntary Arrangement?
