IVA Pros and Cons: Is an IVA Right for You?

What an IVA does in brief

An IVA is a formal agreement with your creditorsHow to Deal with Creditors: Communication and NegotiationPractical advice on communicating with creditors, negotiating affordable repayments, and understanding your rights when dealing with the companies you owe.Read more → to repay all or part of your debts. You make regular payments to an insolvency practitioner, who shares the money out. GOV.UK says it starts if creditors holding 75% of your debts agree, and then it binds all of them. It stops creditors taking action against you over the debts it covers. For a step-by-step explanation, see our main guide to the Individual Voluntary Arrangement.

The advantages

• Legal protection: Once approved, creditors included in the IVA generally cannot take court action, send bailiffs or demand more than the agreement says.
• Frozen interest and charges: Interest and fees on included debts stop growing, so the balance no longer snowballs.
• Part of the debt may be written off: If you complete the arrangement, the unpaid balance of the included debts is written off. How much depends on your offer.
• One payment: You pay one amount a month instead of juggling several creditors.
• More control than bankruptcy: GOV.UK notes an IVA can give you more control of your assets than bankruptcy, and you may be able to keep a business running.
• A clear end date: The term is set in advance, so you know when it should finish.

The disadvantages

• It costs money: Fees are taken from your payments, particularly early on, so creditors may receive less than you expect. See our guide to IVA costs and fees.
• It is a long commitment: Many arrangements run for five years or more, and your circumstances can change in that time.
• Credit file damage: An IVA is recorded on your credit file for six years from its start, which makes borrowing harder and more expensive. See IVA and your credit score.
• Public record: It is listed on the Individual Insolvency Register until three months after it ends, so employers and others can find it.
• Possible equity release: Homeowners with equity may be asked to try to release some near the end. See IVAs for homeowners.
• It can fail: If you stop paying, the practitioner can cancel the IVA and creditors may then take action again, including bankruptcy proceedings.
• Not everything is included: Secured debts, and some others such as court fines, are not dealt with in the same way.

Pros and cons compared

Who an IVA tends to suit

An IVA is more likely to suit you if you have a stable income, a substantial level of unsecured debt, want to avoid bankruptcyBankruptcyBankruptcy is a legal process that writes off most debts when you cannot repay them. Understand how bankruptcy works in the UK, the consequences and alternatives.Read more → and are confident you can keep up payments for the full term. It is often a better fit than a debt management planDebt Management Plan (DMP)A Debt Management Plan is an informal arrangement to repay unsecured debts at a monthly rate you can afford. Learn how DMPs work, who they suit and what to consider.Read more → when you want legal protection from creditors, and when you want the unpaid balance written off at a set date instead of an open-ended repayment.

Who should think twice

Think twice if your income is insecure or likely to fall, if your essential costs are rising, if most of your debts are small or if you have few assets and little spare cash. A Debt Relief OrderDebt Relief Order (DRO)A Debt Relief Order is a formal solution for people with low income, low debt and few assets. Learn how DROs work, eligibility criteria and what happens to your debts.Read more → or bankruptcy may be cheaper and quicker. A free debt management plan can also be more flexible. Our comparison of an IVA, DMP, DRO and bankruptcy puts the options side by side.

How to decide

Start with free, impartial advice from StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, National Debtline or Citizens Advice. They will look at your income, debts and assets and tell you which solutions you are eligible for. They do not take commission from any one option. Then, if an IVA looks right, compare more than one practitioner on fees and terms using our guide to choosing an IVA provider. Never sign under pressure, and be wary of anyone who promises a particular amount of debt will be written off before looking at your finances.

Common questions people forget to ask

Many people focus on monthly payment and forget the harder questions. What is the total I will pay over the whole term? How much will creditors receive after fees? What happens if I lose my job? What happens to my home or vehicle? What happens if I want to leave early? Write these down and ask them at every meeting. A good adviser welcomes questions. If you are brushed off, take that as a signal to look elsewhere.

A final check before you decide

Compare three numbers: what you owe now, what you would pay in total under the IVA, and what your creditors would actually receive. If the IVA writes off a large share and the fees are modest, it may be good value. If fees swallow much of your payments and the write-off is small, consider the alternatives. Take your time. A good solution will still be available after a day or two of thought.