What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement made between you and your creditors to help you repay your debts over a fixed period, usually five years. IVAs are designed to make debt repayment more manageable by allowing you to make affordable monthly payments, based on your income and essential living costs. This means you only pay what you can reasonably afford, rather than what creditors originally demanded.
One of the main advantages of an IVA is that it offers protection from legal action by your creditors, including court proceedings and further interest or charges on your debts. Unlike bankruptcy, an IVA can often help you keep important assets, such as your home or car, provided you keep up with the agreed payments.
IVAs are part of the broader UK insolvency framework, which sets out different ways to deal with serious debt problems. If you want to understand more about how IVAs fit within the wider context of personal debt solutions, you can read about insolvency and the options available.
How Does an IVA Work?
When you set up an Individual Voluntary Arrangement (IVA), the process begins with a detailed assessment of your financial situation. This involves reviewing all your debts, income, and essential living expenses to work out what you can realistically afford to pay each month. An insolvency practitioner – a qualified debt professional – will guide you through this process. They act as a middleman between you and your creditors, helping to create a proposal for how much you’ll pay back over the term of the IVA.
Once your proposal is ready, your insolvency practitioner will present it to your creditors. At least 75% (by value of debt) of your creditors must agree to the plan for it to be approved. If the IVA is accepted, it becomes legally binding for all parties. This means your creditors must stick to the agreement and can’t take further legal action against you for the debts included in the IVA, as long as you keep up with the agreed payments.
During the typical five-year period of an IVA, you make regular monthly payments based on what you can afford. Your insolvency practitioner manages these payments and distributes them to your creditors. If you stick to the plan, any remaining unsecured debt included in the IVA is usually written off at the end of the term.
One of the main advantages of an IVA over bankruptcy is that it can help protect your assets, such as your home or car, from being sold to pay off your debts. However, if you fail to keep up with the payments, the IVA could fail and your creditors may seek alternative action, including bankruptcy.
If you’re considering an IVA, it’s important to understand all your options. You may want to explore alternatives to bankruptcy to find the best solution for your circumstances.
Benefits and Drawbacks of an IVA
An Individual Voluntary Arrangement (IVA) offers a structured way to deal with unmanageable debts, but it’s important to weigh both the benefits and drawbacks before deciding if it’s right for you.
Benefits of an IVA
One of the main advantages of an IVA is that it helps you avoid bankruptcy, which can have more severe consequences for your finances and lifestyle. With an IVA, you make affordable monthly payments – usually over five or six years – based on what you can reasonably afford. This can make debts feel more manageable and reduce the pressure from creditors, as they are legally required to stop contacting you for payment once the IVA is in place.
Another key benefit is that you can often protect your home and other essential assets. Unlike bankruptcy, where you may be required to sell valuable possessions, an IVA is designed to help you keep them, provided you stick to the agreed terms.
Drawbacks of an IVA
There are important drawbacks to consider. An IVA will have a significant impact on your credit rating, making it harder to obtain credit for six years from the date the IVA begins. There are also fees involved, as the insolvency practitioner who manages your IVA will charge for their services – these are usually included in your monthly payments but can reduce the amount paid to creditors.
An IVA is a legally binding commitment. You must stick to the agreed payment plan for the full term, which can be challenging if your circumstances change. If you fail to keep up with payments, the IVA could fail and you could face alternative solutions such as bankruptcy.
How an IVA Affects Your Financial Future
While an IVA can give you a fresh start, it remains on your credit file for six years, affecting your ability to get loans, mortgages, or even some types of insurance. It’s important to consider how this might affect your future plans.
Is an IVA Right for You?
An IVA might be suitable if you have multiple debts you can’t repay in full but can afford regular payments. However, it’s not the best solution for everyone. If you have few assets or very limited income, or if you need a quicker resolution, other options may be more appropriate. It’s helpful to compare the benefits and drawbacks of an IVA with the effects of bankruptcy before making a decision.
Before proceeding, it’s wise to seek professional advice to ensure you choose the debt solution that best fits your circumstances.
Alternatives to IVAs
When considering an Individual Voluntary Arrangement (IVA), it’s important to be aware of other debt solutions that might suit your circumstances better. Alternatives include bankruptcy, Debt Relief Orders (DROs), and administration orders. Each option has its own eligibility criteria, advantages, and drawbacks.
- Bankruptcy is often used as a last resort and can lead to the sale of assets to pay off debts. It may be suitable if you have little prospect of repaying what you owe. However, it has significant long-term effects on your credit rating and may impact your home and employment.
- Debt Relief Orders (DROs) are designed for individuals with low income, minimal assets, and relatively low levels of debt. DROs are generally quicker and cheaper than IVAs but have strict eligibility requirements.
- Administration orders are available if you have a county court or High Court judgment against you and your debts do not exceed a certain amount. This solution allows you to make regular payments to the court, which then divides the money among your creditors.
Choosing the right debt solution depends on factors like your total debt, income, assets, and whether you own your home. It’s a good idea to explore all your options before making a decision. For a comprehensive overview of these and other solutions, visit Debt solutions – Citizens Advice.
If you’re unsure which route is best for you, seeking professional advice can help you understand the legal implications and find the most suitable way forward.
Risks of Mis-sold IVAs
An Individual Voluntary Arrangement (IVA) can be a helpful way to manage your debts, but sometimes IVAs are mis-sold. A mis-sold IVA happens when the arrangement was set up without proper advice, you weren’t given all the relevant information, or the IVA was not the best option for your circumstances. This can occur if you were pressured into an IVA, important details about fees or risks were not explained, or you were not told about other debt solutions.
Common signs of a mis-sold IVA include being encouraged to enter an IVA when you had little or no disposable income, not being told about alternatives like debt management plans or bankruptcy, or discovering unexpected costs and restrictions after the agreement started.
If you think your IVA was mis-sold, it’s important to act. You can seek advice, challenge the arrangement, or make a formal complaint. For more on your rights, how to identify issues, and what steps to take, see our dedicated page on mis-sold IVAs.
You may also find guidance on making complaints about debt helpful if you feel you have been treated unfairly regarding your IVA.
Renting When You Have an IVA
Having an Individual Voluntary Arrangement (IVA) can affect your ability to rent a home, as landlords and letting agents may check your credit history. An IVA will appear on your credit file, which could make it harder to pass certain credit checks or secure some private rentals. However, you still have the right to rent a property, and there are no laws preventing tenants with an IVA from renting in the UK.
If you already rent your home, it is important to keep up with your rent payments as part of your responsibilities under the IVA. Missing rent payments could put your tenancy at risk and may also breach the terms of your IVA. If you are looking for a new place to rent, be honest with landlords about your financial situation and consider providing references or a guarantor to strengthen your application.
For more detailed guidance on your rights, responsibilities, and practical tips for renting if you have an IVA, visit our dedicated page. If you are worried about keeping your home while managing debts, you may also want to explore housing assistance options.
Comparing IVAs with Other Debt Solutions
When considering an Individual Voluntary Arrangement (IVA), it’s important to understand how it compares to other debt solutions such as bankruptcy, administration orders, and Debt Relief Orders (DROs). Each option has different effects on your finances, assets, and credit rating, and the right choice depends on your individual circumstances.
IVAs are formal agreements with your creditors to pay back part of your debts over a set period (usually five years). You keep your assets, like your home, as long as you keep up with payments. IVAs affect your credit file for six years and are suitable for people with multiple debts and a regular income.
Bankruptcy is a legal process that can write off most debts, but it may require you to sell valuable assets, including your home, and can impact your employment in certain professions. Bankruptcy also stays on your credit file for six years and is often seen as a last resort.
Administration orders are available if you have debts under £5,000 and at least one County Court judgment (CCJ) against you. They allow you to make affordable monthly payments, but your name will be listed on the Register of Judgments, Orders and Fines.
Debt Relief Orders (DROs) are designed for people with low income, few assets, and debts under £30,000. A DRO can freeze your debts for 12 months, after which they may be written off if your situation hasn’t improved. For more details, see IVA or DRO: Which is the best debt solution for you? – UK Debt Expert.
The best solution depends on your financial situation, the amount of debt you have, your income, and whether you have assets to protect. It’s important to explore all bankruptcy alternatives and seek professional advice before making a decision. Carefully considering each option will help you choose the most suitable path to manage your debts and protect your future.
Where to Get Help and Advice
If you’re considering an Individual Voluntary Arrangement (IVA), it’s essential to seek professional help before making any decisions. Insolvency practitioners are licensed professionals who specialise in managing IVAs and other forms of insolvency, and they are the only people legally allowed to set up and supervise an IVA. Debt advisors can also help you understand your options and decide if an IVA is right for you.
Before entering into an IVA, always get independent advice. This helps you fully understand the implications, including how your assets and credit rating may be affected. Free or low-cost debt advice is available from charities and not-for-profit organisations, which can guide you through your choices without any pressure to commit.
When choosing an IVA provider, check that they are authorised and regulated. You can ask for their credentials and verify them with recognised industry bodies. Be wary of scams or companies making unrealistic promises – reputable professionals will always give clear, honest advice and explain all fees upfront.
IVAs are governed by The Insolvency Act 1986, which sets out the legal framework for how they work in the UK. If you feel you’ve been treated unfairly by a debt advisor or IVA provider, you have the right to make debt complaints and seek further help.
