An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors to repay a portion of your unsecured debts over a fixed period, usually five or six years, after which the remaining balance is written off. It is a form of insolvency and it is a serious step, but for people with significant unsecured debt and no realistic prospect of repaying it in full, it can be the most practical route to a fresh start.
How an IVA is set up
An IVA is arranged through a licensed insolvency practitioner, known as an IP. They assess your income, essential outgoings, assets, and total debt, and propose an affordable monthly payment to your creditors. The proposal is put to a vote of your creditors. If creditors representing seventy-five per cent or more of your debt by value agree, the IVA is approved and becomes binding on all creditors, including those who voted against it.
Once in place, all interest and charges are frozen. You make one monthly payment to the IP, who distributes it to creditors. You do not deal with individual creditors directly any more. Creditor contact during an approved IVA must stop.
What gets written off
The amount written off at the end of an IVA varies depending on what was affordable during the term. If you paid £200 a month for sixty months, the creditors received £12,000. If your total debt was £30,000, the remaining £18,000 is written off on successful completion. The exact split depends entirely on your circumstances. An IVA is not a fixed percentage deal. It is based on what you can genuinely afford.
The impact on your credit file and daily life
An IVA appears on your credit file for six years from the start date. During that time, obtaining credit is difficult. Your home is not automatically at risk, but if you own property the IP will assess it, and in some cases equity may need to be released at the end of the term. Your IVA is also recorded on the Insolvency Register, which is publicly searchable. Certain jobs and professional qualifications, particularly in financial services, may be affected by an IVA.
Beware of fees
IVA fees are paid from the monthly contributions rather than upfront, but they are significant and reduce the amount going to creditors. Some commercial IVA firms advertise heavily and are not always transparent about the total cost. Getting an independent assessment of whether an IVA is the right option for your situation, through a free debt advice service such as StepChange, is strongly recommended before committing.
IVA vs other options
An IVA is not the right option for everyone with debt. A debt management plan is less formal, does not write off debt, and has a smaller impact on your credit file. Bankruptcy writes off debt faster but has stricter consequences for assets and employment. Debt Relief Orders are available for people with very low income, assets under £2,000, and debts under £30,000. A free regulated debt adviser can help you compare all the options for your specific situation without any obligation to proceed with any of them.
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Ask Fin provides general guidance only, not regulated debt or insolvency advice. If you are considering an IVA or any formal insolvency option, please contact a free regulated debt advice service such as StepChange (stepchange.org) or National Debtline (nationaldebtline.org) before proceeding.