What is an IVA? (UK)

Understanding IVAs

An Individual Voluntary Arrangement is a formal agreement between you and your unsecured creditors. It is set up by an insolvency practitioner and approved by your creditors and the court. An IVA usually runs for five or six years, during which you make affordable regular payments. Any remaining unsecured debt covered by the arrangement may be written off when it finishes. Because it is a legal process, there are strict eligibility criteria and fees.

How an IVA works

The process typically involves several stages:

• You work with an insolvency practitioner to provide details of your income, spending, debts and assets.
• The practitioner drafts a proposal based on what you can reasonably afford each month.
• Your creditors vote on the proposal. If creditors who hold at least 75% (by debt value) agree, it becomes binding on all unsecured creditors included.
• You make the agreed payments to the practitioner, who distributes them to your creditors after deducting their fees.
• If you complete the IVA successfully, included unsecured debts are usually written off. If it fails, creditors can again pursue you for the remaining amounts.

Because the IVA is legally binding, you must adhere to the agreed budget. Missing payments can jeopardise the arrangement.

Potential benefits and limitations

Every formal debt solution has positives and negatives. Some people appreciate that an IVA can stop further enforcement action and combine multiple unsecured debts into one manageable payment. Interest and charges on included debts are usually frozen once the arrangement is approved.

On the other hand, IVAs usually last several years and require a stable income. Your credit file will be affected for a long time. Homeowners may be asked to release equity towards the end of the arrangement, and certain assets can be at risk if you don’t keep to the terms. Failing an IVA can lead to bankruptcy. Because circumstances vary, speaking to a regulated adviser or charity before entering into an IVA is essential.

Alternatives and next steps

An IVA is only one of several formal debt solutions. Others include Debt Management Plans (DMPs), Debt Relief Orders (DROs) and bankruptcy. Informal arrangements such as negotiating directly with creditors may also be options. Each solution has different eligibility criteria, costs, durations and impacts on your credit record and assets.

If you are considering an IVA, it can be helpful to compare it with these other options. Our guide on DMPs explains how informal plans work. The guide to DROs looks at a low‑cost solution for people with low debts and minimal assets. Our article on bankruptcy outlines what happens if you choose that route. Understanding the differences can help you have more informed conversations with a free debt adviser.

Sources

• GOV.UK – Individual Voluntary Arrangements
• StepChange – How an IVA works
• National Debtline – IVA fact sheet