Individual Voluntary Arrangement (IVA)

What it is

An IVA is a formal insolvency solution introduced by the Insolvency Act 1986. It is a legally binding contract between you and the people you owe money to. Under the terms of the arrangement, you agree to make regular payments (usually monthly) for a set period, and your creditors agree to accept those payments in full and final settlement of the debts.

Unlike a Debt Management Plan, an IVA is legally binding. Once it is approved by a majority of your creditors, all creditors included in the arrangement are bound by it — even those who voted against it or did not respond. They cannot take further legal action against you while the IVA is in place.

Who it may apply to

An IVA may be suitable if you:

• Have significant unsecured debts (typically £10,000 or more)
• Have a regular income and can afford monthly payments of at least £80–£100
• Cannot repay your debts in full but want to avoid bankruptcy
• Own a home and want to protect it from being sold to repay debts
• Have debts spread across multiple creditors
• Want a formal solution with a defined end date and debt write-off

How it works

The IVA process involves several stages:

First, you work with an Insolvency Practitioner (IP) to assess your financial situation. The IP helps you prepare a proposal — a document that sets out your income, spending, debts, and what you can afford to pay each month.

The proposal is then sent to your creditors, who vote on whether to accept it. For the IVA to be approved, creditors representing at least 75% of the debt value who vote must agree. Once approved, the IVA legally binds all creditors included in it, regardless of how they voted.

You make monthly payments to the IP, who distributes the money to your creditors. The IP also monitors the arrangement and conducts annual reviews. If your circumstances improve, you may be asked to increase your payments.

At the end of the IVA term (usually 5–6 years), provided you have met all the terms, any remaining debt included in the arrangement is written off. The IP issues a completion certificate confirming the IVA has ended.

Advantages and disadvantages

An IVA offers significant benefits but also carries serious long-term implications.

Advantages

• Legally binding — creditors must comply and cannot take further legal action
• A significant portion of your debt may be written off
• You keep your home — although you may need to release equity towards the end
• Interest and charges on included debts are frozen
• Defined end date — usually 5–6 years
• Single monthly payment managed by your IP

Disadvantages

It is important to understand the drawbacks:

Disadvantages

• Your credit file is affected for 6 years from the start of the IVA
• Your name appears on the Individual Insolvency Register (a public record)
• You may need to remortgage your home in the final year to release equity
• If your income increases, your payments may increase too
• Fees are taken from your monthly payments — these can be substantial
• If the IVA fails, you may still be made bankrupt
• You cannot take on new credit during the IVA without the IP's permission

Eligibility and qualifying conditions

To enter an IVA, you generally need to meet the following criteria:

• You must be insolvent — unable to pay your debts as they fall due
• You typically need unsecured debts of at least £10,000
• You need a regular income to make monthly payments (usually at least £80–£100 per month)
• You must have debts with at least two different creditors
• You must be a resident of England, Wales or Northern Ireland (Scotland has a similar solution called a Protected Trust Deed)

What happens to creditors

Once the IVA is approved, all creditors included in the arrangement are legally bound by its terms. They cannot contact you for payment, add interest or charges, or take legal action against you. All communication goes through your Insolvency Practitioner.

Creditors receive a share of your monthly payments proportional to the amount you owe them. They also receive a report each year detailing the progress of the IVA.

If a creditor was not included in the IVA (for example, because you forgot to list a debt), they can still pursue you for that debt. It is therefore critical to include all your unsecured debts in the arrangement.

What happens to debts

Under an IVA, you repay a portion of your debts — not the full amount. The exact proportion depends on your disposable income, the length of the IVA, and any assets (such as home equity) you may need to release.

Interest and charges on all debts included in the IVA are frozen from the date the arrangement is approved. This means your debts stop growing.

At the end of the IVA, any remaining balance on the included debts is written off. You are no longer liable for them. This is one of the key benefits of an IVA compared to a Debt Management Plan, where debts are repaid in full.

Costs and fees

An IVA involves fees that are paid to the Insolvency Practitioner. These typically include a setup fee (nominee fee) and an ongoing management fee (supervisor fee). Fees can total several thousand pounds over the life of the IVA.

Importantly, these fees are built into your monthly payments — you do not pay them separately. However, it means that a portion of each monthly payment goes towards fees rather than to creditors. Your IP must explain the fee structure clearly before you sign the proposal.

Be cautious of IVA providers that charge high upfront fees or pressure you into an IVA without exploring alternatives. Always seek advice from a free, independent debt adviser first — they can help you determine whether an IVA is genuinely the right option and refer you to a reputable IP if it is.

How long it normally lasts

An IVA typically lasts for 5 years (60 months), but can extend to 6 years if you need to release equity from your home in the final year. In some cases, the term may be longer if payments are missed and need to be made up.

If you receive a lump sum (for example, from a redundancy payment or a gift from family), the IVA may be completed early through a "full and final settlement" offer to your creditors.

Some IVAs are structured as lump-sum-only arrangements, where you pay a single one-off amount rather than monthly payments. These can be completed much more quickly.

Potential consequences

An IVA has several long-term consequences that you should understand before entering one:

• Your credit file will show the IVA for 6 years from the date it starts, making it very difficult to obtain credit during and after this period
• Your name will appear on the Individual Insolvency Register, which is publicly searchable
• You may be required to remortgage your home in the final year to release equity for creditors
• If you fail to keep up payments, the IVA can be terminated and you may face bankruptcy
• You must disclose the IVA if asked by certain employers or in certain professional situations
• You cannot act as a company director without the court's permission during the IVA

Alternatives

If an IVA is not the right fit, consider these alternatives:

• Debt Management Plan (DMP) — informal, flexible, but no debt write-off
• Debt Relief Order (DRO) — for people with low income and low debt
• Bankruptcy — quicker but with more severe asset consequences
• Administration Order — a court-based arrangement for debts under £5,000 with a CCJ
• Breathing Space — temporary protection while you decide on a longer-term solution