What is an IVA?

An Individual Voluntary Arrangement (or IVA) is a UK debt solution for those struggling to repay their unsecured debts. 

In simple terms, an IVA is a formal agreement made between you and the people that you owe money to (aka your creditors). This agreement allows you to pay back a small percentage of the total debt you owe, through regular monthly payments. These repayments are based on what you can afford, rather than the original terms of your agreements with creditors.

Thousands of people in the UK take on an IVA each year, and by the end of the agreed term, many see a significant amount of their debt written off.

How does an IVA work? 

The key facts you need to know about an IVA agreement and how it works: 

  • entering an IVA will freeze your debts and allow you to pay them back over a set period
  • IVAs typically last for 5 years (60 months)
  • after this term, any money still owed will be written off 
  • you can apply for an IVA if you can afford to make regular payments towards your debts (even if this is not the full amount your creditors want)
  • these monthly payments can start from £80 per month
  • the IVA is set up by an ‘Insolvency Practitioner’, who works with you to create a proposal 
  • to have the proposal approved, creditors representing a minimum of 75% (in value) must vote to agree to it
  • once agreed, neither you nor your creditors can back out

Benefits of an IVA

Become Debt Free

Typically, the fixed period for an IVA is 5 years (60 months). Once this period is complete, your remaining debt will be written off and you’ll become completely debt-free. The % of your debt that is written off will depend on the monthly payments you agreed to initially, but it’s likely to be a significant amount.

No Contact From Creditors

As soon as you formalise your IVA (and sometimes sooner), your creditors will no longer be allowed to contact you – it’s part of the legally binding agreement. That means no more text messages, emails, letters, phone-calls, or home visits.

Just One Low Payment

You only need to make one affordable monthly payment, paid to your assigned Insolvency Practitioner (IP). The exact amount of these monthly repayments will be based on your individual circumstances but can start from as low as £80 per month. 

Property Protection

If you enter an IVA you’ll not be asked to sell your home or any of its contents. However, if you have a lot of equity in your house, you could be asked to remortgage it, to release money towards the end of your plan.

No Stigma

An IVA won’t be publicly announced like bankruptcy is. All of your dealings with your IP will be kept private, and it’s entirely your decision whether to tell your family and friends.

Keep your pension

Your private pension will be largely protected in an IVA. And once you’re debt-free, you’ll still be able to continue building it.

Stops Interest and Charges

Once you enter an IVA, all debt-interest will stop. That means no more late payment, overdrawn, or overspending charges. It’ll all be frozen, allowing you the breathing space to work towards truly reducing your level of debt.

Potential For Payment Holidays

if something unexpected happens in your life, your IP may agree for you to take a temporary payment break. In this case, the months you missed will simply be added onto the end of the IVA, extending the overall term. 

Generous Allowances

Your advisor will help you work out allowances for your food, entertainment, utilities, childcare, and all other factors. Allowing you to create a budget that is considerate of all your essential costs. Any lump sums you can contribute will also be considered.

Easy Setup

You submit your documents digitally, meaning you can be up and running in a short period of time. Plus, with an IVA there are zero upfront costs – your only commitment is the low monthly payment.

No Career Impact

How does an IVA affect your career? In most cases, employers will not even ask about insolvency and it’ll have no impact. There are a few industry exceptions, such as banking, insurance, and law – so it’s worthwhile to check.

Allows a Fresh Start

By the end of the term, you’re set-up for a fresh start! An IVA can give you a second chance to manage your own finances and rebuild your credit rating.

The Criteria for an IVA

Sounds good so far, but do you qualify for an IVA?

Strictly speaking, anybody can apply for an IVA – the criteria is not completely fixed. But your creditors need to approve the IVA for it to be formalised. So the more of the below criteria you can put a tick next to, the greater your chances are.

Insolvent

Being insolvent means you aren’t able to pay the money you owe (to either a person or company) on time, and that the value of these debts is greater than the value of your assets.

Over £5000 Unsecured Debt

Officially, there is no minimum debt level required. But we give £5000 of unsecured debt as a guideline because this is a common figure that the best IVA companies will use. If your unsecured debt level is below £5000 then a case-by-case decision will be made on your circumstances.

2+ Creditors

You’ll need to owe money to at least two different people, businesses, or companies (i.e. your creditors).

Regular Income

An IVA is a legally binding debt solution, so you must maintain regular monthly payments as part of the arrangement. An IVA is unlikely to be approved if you can’t show that you have a regular source of income and that you can afford to pay these repayments.

Pay a Minimum of £80pm

As long as you can afford to contribute a minimum of £80 per month into your arrangement, this is usually acceptable to get debt help. Above £80 there is no fixed limit on what you need to pay – it’s entirely dependent on your personal circumstances.

Better Return for Your Creditors

If your creditors are agreeing to make you completely debt-free after 5 years, they need to make sure that the deal you are offering them is better than if they made you bankrupt. Your IP will structure your IVA proposal in a way that makes it more attractive to your creditors than bankruptcy, which is why they tend to accept the majority of proposals put forward to them.

Reside in England, Wales or N. Ireland

Your current living address needs to be registered in England, Wales or Northern Ireland to be eligible for an IVA. If you’re a resident of Scotland, you can read our post on Scottish Trust Deeds.

How to Apply for an IVA

If you meet the criteria above, you’ll probably be keen to get started. Here’s how…

Step 1: Use Our IVA Calculator

You can quickly check your eligibility by using our IVA Calculator. It only takes a few minutes and costs nothing.

Step 2: Credit Check

This is not a typical credit check, it will not affect your score and it won’t be classed as an application. But it will display a list of your debts that we’ll need for the IVA proposal. Debts that are not displayed on the credit check will need to be added manually, which takes us onto step 3.

Step 3: Gather Your Financial Info

Spend some time getting together as much detailed information as you can regarding your regular expenses (think rent, travel, utility bills, etc). You and your Insolvency Practitioner will use this information to agree to an affordable amount, which you can repay for the term of the IVA.

Step 4: Building an IVA Proposal

Next, your Insolvency Practitioner will create an IVA proposal to present to your creditors and the court. This will include a detailed financial breakdown of your current circumstances and a specific proposal outlining the repayment terms. It will also give reasons as to why the creditors should accept an IVA.

Step 5: Your Creditors Will Consider the Proposal

Once your proposal is finalized, your Insolvency Practitioner will call a creditors’ meeting. Your Insolvency Practitioner will then present your proposal to the creditors that your debts are with, and each creditor will receive a vote. The power of that vote depends on the percentage of the debt they have, within your total debt amount. To have an IVA agreed, you need 75% approval.

Step 6: Approval!

You’ll formally enter into the IVA and become protected against debt recovery action – meaning you won’t have to deal with bailiffs or debt collectors. Plus, as long as you abide by the terms of the proposal, your remaining debt will be written off at the end of the fixed term.

Step 7: Annual Review of Your IVA Debt

A review will be conducted each year to make sure that you’re still able to make the agreed payments. You can expect to go through more financial checks, but as long as you’re able to make the agreed IVA payments on time, nothing will change.

Step 8: Become Debt Free

Congratulations! At the end of your IVA, you will now be completely debt-free!

Get IVA Advice Today

Why wait to start clearing your debt?

Here at IVA Advice, we work with a network of the country’s top-rated Insolvency Practitioners who can guide you through the IVA process from start to finish.

We’re able to give you tailored advice for your specific circumstances and then, if appropriate, connect you to the best IVA company for your unique situation. This advice is FREE and you can get started immediately with our IVA Calculator.