An Individual Voluntary Arrangement (IVA) is a personal insolvency process that is an alternative to becoming bankrupt. It’s a legally binding agreement between you and your creditors.
An IVA can only be set-up and managed by a licenced insolvency practitioner (usually an accountant or lawyer). They often run for five years (six years for some homeowners) during which you repay what you can reasonably afford. Any remaining debt gets written-off once you have completed the arrangement.
Your surplus income (money left after paying your bills and other reasonable expenses) is paid into the IVA. They can also be funded using a lump sum payment.
This debt solution is available if you live in England, Wales, or Northern Ireland. It may also be available if you have moved abroad from these countries within the past three years. An IVA is not available to residents of Scotland, though a Scottish protected trust deed is similar in many respects.
For expert confidential debt advice please contact us.
1 - Help Dealing with your Creditors
Being chased by debt collectors for payment can lead to stress, frustration, and distraction. The team managing your IVA will deal with your creditors for you.
2 - Legal Protection
Once your IVA has been approved, your included creditors cannot use the courts to recover money from you. As well as reducing stress and worry, this could help to protect your home, vehicle, and employment status. Legal action can be suspended during the IVA set-up period by using Breathing Space or an “interim order”.
3 – Avoiding Bankruptcy
Becoming bankrupt can lead to very serious consequences for some people. Homes, businesses, vehicles, and your employment could be put at risk. In some circumstances the consequences of an IVA will be less severe, though bankruptcy does remain an appropriate debt solution for many people.
4 - Protecting your Home
An IVA may deal with your assets more flexibly than bankruptcy. For example, it’s possible to have some equity in your home and retain ownership of it. This flexibility might encompass adding an extra year of payments to the usual five years term, or perhaps releasing some of the equity in your home using a new loan. You should continue to pay your mortgage in full throughout your IVA.
5 - One Affordable Monthly Payment
Your debt repayments are consolidated into a single monthly (or weekly) IVA payment. The payment is calculated using an affordability test. Your household bills and other important expenses are prioritised, with any surplus income left over being paid into your IVA.
6 - Debt Write-Off
When you complete your obligations, you’ll receive your IVA completion certificate. Any remaining debt included in your IVA (that hasn’t been fully repaid) is legally written-off at this stage.
7 - Interest and Charges Frozen
Interest and charges aren’t added during your IVA, to prevent your debt total from increasing. However, interest could be reapplied if your IVA fails or if your financial situation improves significantly before your IVA ends.
8 - Your Pension Funds
Pension assets are treated separately to other types of assets. Money properly invested within an approved pension scheme is safe, provided that you leave it there. If you withdraw any pension funds prior to being discharged (as income or a lump sum) the protection ends and it will be treated as regular income.
1 - Damaged Credit Rating
Using an IVA will negatively affect your credit rating in a similar way to bankruptcy. It will be recorded on your credit file for a total of six years and your IVA agreement will restrict your ability to use new credit until you have completed the arrangement. Any credit that you can access is likely to be offered at a comparatively high interest rate.
2 - Requires Creditor Support
You need 75% of your creditors to support (or at least fail to object to) your IVA proposal. If 25% or more of your creditors (by debt value) object then your IVA will not go ahead. Your creditors might suggest changes to your IVA proposal, known as modifications, in return for their support. You can decide whether to accept any such proposed modifications.
3 – Restricted Budget
Your IVA budget prioritises the payment of your household bills, your other necessary expenditure, and also provides modest allowances for discretionary spending. This should enable you pay all of your essential household bills and purchase other essentials, but non-essential spending budget is restricted throughout the IVA.
4 - Homeowner Equity Release
You own “equity” in your home if it is worth more than your mortgage balance. You may be expected to attempt to remortgage to release funds in the final year of your IVA. Many homeowners cannot release equity, due to their poor credit score, and instead make an extra year of monthly payments into their IVA.
5 - Vehicles
If you have a reasonable need to operate a vehicle you’ll be allowed to keep one. There may be additional requirements if you own a vehicle that’s worth £5,000 or more. For example, you may need to downgrade your vehicle or instead make additional monthly payments into the IVA in lieu of its’ value. You can usually keep a financed vehicle provided that the cost is reasonable and the finance provider doesn’t enforce an insolvency clause in the credit agreement.
6 – Windfalls
A windfall is a lump sum of money (or property) that you become entitled to during your IVA, such as an inheritance. Your IVA will include a windfall clause that requires you to hand over any significant windfall that you receive to help repay your creditors.
7 - Arrears
You’ll stop paying your creditors directly at the start of your IVA, which will result in you falling into arrears. If you already have arrears, they will increase. Interest can continue to be added until your IVA gets approved.
8 - The Insolvency Register
During your IVA your personal details are published on an online register applicable to either England & Wales or Northern Ireland. This public record is removed three months after your IVA has been completed.
9 - Fees
All IVA providers charge fees which are taken from the payments you make. These fees are effectively charged at the expense of your creditors, unless your IVA fails or your financial situation significantly improves before you get discharged. If your IVA does fail the fees and costs already incurred are taken from the money you have paid, which may leave little (or no) money left over to make a payment to your creditors.
10 - Employment
The majority of jobs aren’t affected by using an IVA. However, there are exceptions, some of which we outline in greater detail below. It’s recommended that you check your contract of employment for clauses related to personal insolvency and/or your personal financial status before you proceed with any type of debt solution.
11 – Changes in your Circumstances
Your IVA payment is subject to change. If your income goes up, or your bills reduce, your payment could increase in the future. There is also some scope for your payment to be reduced if your financial situation worsens. You should promptly disclose any significant financial changes to your IVA supervisor to avoid problems in the future. Your supervisor will also contact you periodically to complete a review of your IVA.
12 - New Bank Account
You’ll probably need to get a new bank account before starting your IVA. It’s important to get a basic bank account from a bank that isn’t one of your creditors. Your old and new bank should cooperate to transfer your direct debits and standing orders.
13 - IVA Failure
Your IVA could fail if you cannot (or do not) make your agreed payments. In most instances of case failure, you’d need to deal directly with your creditors again until a new debt solution has been put in place. However, it’s possible that your creditors could instruct your IVA supervisor to make you bankrupt instead.
A joint IVA can help couples to deal with their household’s debts in a coordinated way. This debt solution is in fact two separate IVAs that are described as being “interlocking”. It will feel like a joint arrangement because you’ll share the same adviser and the same set-up process. Even if you have joint debts, entering an IVA together isn’t automatically the best option.
You monthly IVA payment is based upon an affordability calculation. This calculation entails subtracting your household bills and other reasonable expenses from your total income. Expenditure allowances are used for certain types of spending to avoid budgeting too much or too little.
The purpose of this calculation is to agree a monthly payment amount that is affordable for you and your family, but which also provides an acceptable level of repayment to your creditors. After your IVA has begun, your payment level could increase or decrease if your financial situation changes.
The standard IVA term is five years. This repayment term is often extended to six years for homeowners with equity in their property. Extensions are also possible if you miss payments, or if you fail to disclose changes such as an increase in your income or receipt of a windfall.
A full and final IVA is a less common type of arrangement. This process is based upon introducing a single lump sum. The lump sum is often generated via the sale of an asset or gifted by a third party (like a relative). Once the lump sum has been paid your IVA can be completed. A full and final IVA isn’t usually available if you can also afford a monthly payment via your surplus income.
An IVA will not cause employment problems for the most people. It’s recommended that you check your contract of employment for references to personal insolvency before going ahead.
Some professionals are subject to scrutiny from regulatory bodies that impose standards regarding financial conduct and personal insolvency. Examples of such professions include solicitors and accountants. Financial services firms also often review the personal financial standing of their staff.
Running your own business can also create complications when dealing with personal debt. We explain this further in our page for company directors and sole traders.
Vetted types of work commonly require advance disclosure of your intention to enter an IVA. Examples include:
• Prison officers
An IVA is a relatively flexible type of arrangement, so strict qualification criteria don’t apply. Factors that indicate that you might qualify include:
• Owing money to more than one creditor
• Owing £5,000 or more in total
• Being able to afford a monthly payment
• Being unable to afford your full contractual debt repayments
• You cannot clear the debt faster using a free DMP
• You live in England, Wales, or Northern Ireland
• You moved overseas within the past three years
Consult with a debt adviser to find out whether you qualify for an IVA and whether any more suitable alternatives exist.
You are allowed to use an IVA more than once and no time limit applies. Entering a new IVA is possible if you have completed one in the past, or if your previous arrangement formally failed. You cannot apply if you’re currently undischarged from bankruptcy, a debt relief order, or another IVA.
All relevant debts are automatically included in an IVA. You do not have an option to exclude a qualifying debt and keep paying it directly. The following types of debt are included:
• Bank loans
• Guarantor loans
• Payday loans
• Store cards
• Council tax
• Overpayments of tax credits or benefits
• Mortgage shortfalls
• Cash owed to friends or relatives
• Unpaid bills
• Utility arrears
The following types of debt aren’t usually included in an IVA:
• Debt secured on a home
• Rent arrears
• Debts secured on a vehicle
• Household goods hire purchase
• Student loans
• Court fines
• TV licence
• Child support or child maintenance
• Social fund loans
Your IVA will protect you from your creditors, but it provides no protection to any other person who also has liability for the money you owe. This applies in particular to guarantor loans and joint loans. In both cases the other party remains responsible for making the full contractual repayment despite your IVA.
You can include debts that have resulted from gambling, but you may need to present evidence that you have stopped gambling for some time before an insolvency practitioner is prepared to proceed with your case.
An individual voluntary arrangement works in four stages:
1. Advice. You contact a debt adviser who analyses your financial situation and suggests suitable debt solutions.
2. Nominee. You appoint an insolvency practitioner (IP) who attempts to get your IVA agreed with your creditors.
3. Supervisory. Your IP conducts periodic reviews and responds to queries from you and your creditors.
4. Completion. Your IP issues your completion certificate when you have completed your part of the arrangement.
Your adviser will need to receive documentation and information from you. Firms have slightly different requirements, but the following types of documents are often required:
• Recent bank statements
• Recent payslips
• Benefit award letters
• Mortgage redemption certificate
• Vehicle finance agreement
• Photo and address ID
Keep creditor letters and statements that you receive by post and email. They’ll help you and your adviser to track account numbers, balances, and transfers to debt collection agencies and debt purchasers.
Some options to bring an IVA to an early finish include:
• Clearing your debts, interest, and IVA fees in full
• Introducing a lump sum from a third party
• Taking out an IVA “early settlement loan”
IVA early settlement loans involve borrowing, at a comparatively high interest rate, to produce a lump sum to complete your arrangement. Unless you have an urgent need to finish your IVA, this type of loan is generally best avoided. In the long-term they are likely to cost you more and keep you in debt for longer than simply completing your IVA.
1 - Debt Management Plan
A debt management plan (or “DMP”) is not formal personal insolvency and is considerably more flexible than an IVA. Your assets are not taken into account and there’s no public register.
A debt management plan does not provide formal legal protection from your creditors and it doesn’t absolutely guarantee that interest will stop being charged. No debt gets written off, so larger debt totals can take longer to repay than the usual IVA repayment term.
2 - Debt Relief Order
A debt relief order (or “DRO”) could be a much cheaper and faster way to become debt free. To qualify for a DRO (in England and Wales) your debt total cannot exceed £30,000, you cannot be a homeowner, and your disposable income must be assessed as being £75 per month or less.
You can own a vehicle worth up to £2,000 and also own other assets worth up to a total of £2,000. If you qualify to use a debt relief order, this debt solution should always be considered very carefully.
3 - Bankruptcy
Bankruptcy might also be a cheaper and faster way to address a debt problem, but it deals with certain assets (like homes and cars) less flexibly than an IVA. The application fee is high (£680) but any affordable monthly payments will continue for just three years.
Unlike an IVA, your bankruptcy will not become at risk if your finances worsen and you become unable to afford a monthly payment.
4 - Debt Consolidation
Debt consolidation involves obtaining one new loan to repay your other debts. It might be beneficial if you can genuinely afford the new repayment and your interest costs are reduced. Consolidation can also be a particularly risky course of action, not least if you secure the new debt against your home.
Insolvency practitioners (IPs) are supervised by regulatory professional bodies such as the IPA and ICAEW. An IP and their staff cannot provide you with full debt advice unless they are also authorised and regulated by the Financial Conduct Authority (you can check here). This means many IPs cannot advise you about other debt solutions that might be more appropriate for your needs.
Insolvency work isn’t covered by the Financial Ombudsman Service. However, all debt advice provided by an FCA regulated debt adviser is covered by the Financial Ombudsman. Complaints about insolvency practitioners that cannot be resolved directly can be submitted via the Insolvency Service Gateway. Money paid into your IVA is kept in a ringfenced client account and is fully insured.
For confidential advice about an IVA (and other debt solutions) please contact us. Our advisers are friendly, qualified, and experienced.
Bright Oak is authorised and regulated by the FCA to provide debt advice and debt adjusting services. We’re not a direct provider of insolvency services and work with a panel of insolvency firms that we trust to provide our clients with a high level of service.
Author: Andrew Graveson
Qualified Debt Adviser & Bright Oak’s Founder
Page Last Updated: 04/07/2021