What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a debt management solution which freezes your debts and allows you to pay them back over a set period.
Any money you still owe after this period is written off.
An IVA is a legally binding agreement between you and the people you owe money to. This means when you’ve signed it, it can be difficult for you or your creditors to back out. If you do back out, there are likely to be hefty penalties.
An IVA is usually only available for people living in England, Wales & Northern Ireland. Scotland have a similar option available, called a Trust Deed.
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Table Of Contents
IVA Qualification
You can apply for an IVA if you can afford to pay something towards your debts but cannot pay the full amount your creditors want.
Typically, this ranges around £70 a month after you’ve taken care of essential costs but will vary between IVA providers.
You will need to show you have a regular long-term income, as the repayments will usually cover a period over 60 or 72 months (five to six years).
If you have a lump sum to pay towards your debts, you might also qualify for an IVA.
If you own your home, in the second to last year of the IVA, you could be asked to re-mortgage your house and use the extra funds as a repayment. If you do this, the IVA term would then finish a year early or after you’ve re-mortgaged.
Whether your creditors will agree to the plan depends on your circumstances. If at least 75% of your creditors agree to the proposal, an IVA is likely to be approved – even if some creditors disagree.
Which debts can you pay off with an IVA?
You can use an IVA to help pay off many common debts, including (but not exclusively):
- overdrafts
- personal loans
- catalogue debts
- Council Tax arrears
- hire purchase debts
- mortgage shortfalls
- credit and store cards
- money you owe to HMRC, such as Income Tax or National Insurance contributions.
Which debts can’t you pay off with an IVA?
You can’t use an IVA to pay off:
- student loans
- magistrates’ court fines
- certain types of car finance
- Child maintenance or Child Support arrears
- Social Fund loans
- TV Licence arrears.
Mortgage and rent arrears
If you include mortgage and rent arrears, and other secured loans against your property, in an IVA, your creditors have to agree to this. Often, they won’t agree to do this.
Check with a debt adviser what you can and can’t include in an IVA.
If you have mortgage or rent arrears, see if there are other debt solutions available to help you manage these repayments.
How to set up an IVA
An IVA is set up by a qualified professional called an Insolvency Practitioner. They will work with you to put together a proposal to take to your creditors for approval.
There are costs involved when setting up an IVA, which may include:
- Up-front charges before the IVA is set up. These can differ a lot between IVA providers.
- Fees to the Insolvency Practitioner, which are usually deducted from your monthly payments.
A free debt advice service should be able to recommend an IVA provider for you and help you understand the different fees and charges involved with an IVA.
What if you can’t keep up with payments into an IVA?
If you cannot keep up with payments, the insolvency practitioner can cancel your IVA and apply to make you bankrupt.
It's important to be aware that not all cancelled IVAs lead to bankruptcy – this is purely an option that individual creditors may consider if the IVA fails.
What other options are available?
A free debt advice service may suggest an alternative debt solution, such as:
- Debt Relief Order
- Debt Management Plan
- Bankruptcy
It’s important to know that Debt Advice providers must be regulated by the Financial Conduct Authority (FCA) to ensure they meet agreed standards.
You can check if an organisation is authorised by using the Financial Services Register on the FCA website.