What is an Individual Voluntary Arrangement (IVA)?

If you have debts and are struggling to pay them off, you may be considering taking out an individual voluntary arrangement (IVA). However, is it the right option for you and your circumstances? 

We explore what you must consider. 

What is an IVA?

An IVA is a court-approved document in which you agree to pay back your creditors over a fixed period of time. It is essentially a mechanism that enables people with debts to reset their finances by agreeing to repay a fixed amount to their creditors.  

It is arranged by a professional registered insolvency practitioner who charges fees to arrange and oversee the IVA.

The insolvency practitioner puts together a proposal to your creditors for you to repay your debts, arranges a meeting with them to agree to it and then supervises your IVA for five years.

Could I get an IVA?

IVAs are for people living in England and Wales. If you live in Scotland, you could be eligible for a protected trust deed instead. 

If you are over the age of 18, in debt and have monthly disposable income available (money left over after you pay your bills), you could be eligible for an IVA. 

However, you must be able to demonstrate to your creditors (the organisations you owe money to) that you can’t afford your current monthly repayments and you owe more than your assets (the items you own) are worth. 

Before you apply for an IVA, it’s essential to get debt advice from a debt adviser authorised by the Financial Conduct Authority (FCA) via the Financial Services Register. 

How does an IVA work? 

An IVA enables someone struggling with debts to repay a fixed amount, which may be 75% of the figure owed or as much as the full amount. 

It is a court-approved agreement, which means you and your creditors must comply with it, and you must make regular monthly payments or a lump sum payment you have agreed to. 

While the IVA is in force, which is normally five or six years, your creditors cannot charge interest on your debts or chase you for payment for them. 

You will make your repayments to your insolvency practitioner, who will then review your situation each year. If you get a better job with a higher income, you may have to pay more. 

If the payments aren’t enough to pay your debts in full by the time your IVA ends, you won’t have to pay the remaining balance.

Which debts can I include in an IVA?

Any amount of debt can be included in an IVA. There are no minimum or maximum amounts. 

Most types of debts can also be incorporated into an IVA. Examples include utility bills and store card debts, credit card balances, personal loans, vet bills, overdrafts and income tax arrears. 

What are the pros and cons of an IVA?

If you owe less than £10,000, you may be better off finding an alternative solution to clearing your debts. This is because the fees charged for an IVA by the insolvency practitioner tend to be high – the average charge is currently around £3,650.

The fee is high because it covers the insolvency practitioner’s work on the proposal to your creditors, a meeting to agree it and their supervision of it for five years. 

If your finances are more complex or you run your own business, the fee may be higher. 

Having an IVA may also stop you from doing certain things, such as taking out loans or other credit.  If you have an IVA, you will need permission to take out any further loans or credit in your name. 

What’s more, it will also affect your credit rating and ability to take out a mortgage. 

However, one benefit of an IVA is that you should never have to pay more money than the figure that has been signed off in the agreement with your insolvency practitioner. 

While the IVA is ongoing, your creditors can no longer add interest to your debts or pursue you for them. 

What’s more, as long as you keep up the repayments, it will mean drawing a line under your debts and resetting your finances. 

What if I receive a windfall while I have an IVA?

During the period that you have an IVA, and possibly some time after it, if you receive any additional income or a lump sum, such as an inheritance or lottery win, you must let your creditors know. 

If you receive a cash windfall while you have your IVA, the money will go to your creditors to pay off your debts. 

In fact, even after your IVA has run its course, your creditors could still have a right to any lump sum you receive. So, if you receive a windfall, make sure to take financial advice. 

What are alternatives to an IVA?

If you owe less than £10,000, it may be worth considering alternative solutions to an IVA, especially because the fees will add to your existing debts. 

If you have store card or credit card debts, for example, it may be more affordable to take out a personal loan at a lower interest rate and pay off the money you owe. 

Alternatively, you could take out a credit card offering a 0% period and transfer your balance to it.  As long as you can pay off what you owe before the 0% period ends, you will not incur more interest on the balance of the debt. 

Other solutions could be to get a family member to help you pay off your debts or, if you are a homeowner, consolidating them by remortgaging.

However, this will add the debt to your mortgage and could mean you pay more interest over time.

Other solutions could be to reduce your outgoings and find ways to increase your income to pay off the debts. 

Alternatives to an IVA include a debt management plan, an administration order or bankruptcy. A debt management plan is a more informal arrangement agreed with your creditors, while an administration order is something which is put in place after you have had a county court judgement against you for debts of under £5,000. 

These debt solutions can have a knock-on effect on other areas of your life, however. They might affect your credit rating, ability to take out a mortgage or savings, or the type of work you can undertake. Make sure you understand the consequences before agreeing to anything. 

Should I take out an IVA?

Deciding whether to take out an IVA will depend entirely on your individual circumstances, but also on whether your creditors will agree to it. 

Don’t be rushed into a decision about how to handle your debts – make sure you get as much advice as you can. 

There is debt advice available free from Citizens Advice Bureau, the National Debtline, and the government’s MoneyHelper website. 

There is also the government’s Breathing Space scheme, which gives you time out from making debt repayments (up to 60 days) to work out a better long-term solution. You need to apply for this through a debt adviser. 

If you do decide to commit to an IVA, again, remember that you must also get debt advice from a FCA-registered debt adviser. 

You can also find an insolvency practitioner yourself via the government website. You don’t have to go through a debt management company, and you will most likely pay more if you use one. 

Get expert financial advice

Deciding how to manage significant debt is a critical financial decision, and as the article highlights, options like an Individual Voluntary Arrangement (IVA) come with serious, long-term implications.

Given the complexity and the potential impact on your financial future, it's essential not to rush and to seek professional guidance.

A qualified financial adviser can provide the impartial, expert counsel needed to navigate this process. They will help you create a clear and sustainable plan tailored to your specific circumstances.