What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors in which you arrange to pay back a certain percentage of the money that you owe over a set period of time and at a lower monthly rate of interest.
When the IVA period comes to an end, your debt will be considered settled even if you have not paid back the full amount.

IVAs are often considered a better alternative to filing for bankruptcy, and they have been mentioned a lot in the media recently. The key point is that they represent a formal arrangement and are therefore legally binding for the creditors, thereby differing from other schemes such as the DMP. They offer a great way to pay back large amounts of debt for those who are in financial difficulties, and can even lead to considerable amounts of debt being written off, although this will depend on your individual circumstances.

As it is a formal agreement, the IVA cannot be arranged yourself and has to be set up through an Insolvency Practitioner (IP). Your IP will begin by helping you work out how much you can reasonably be expected to pay back each month, and will advise you on whether an IVA is in fact the right course of action for you. If they decide that an IVA is your best option, they can then help you to apply for an interim order, which will prevent you from facing any legal challenges from your creditors, although this is not always necessary.

The creditors will then be called to a meeting in which they will have to decide whether they agree with the proposed arrangement or not. Although it is called a meeting, they will often not turn up in person and will instead communicate their decisions via letters. Each creditor will represent a certain percentage of your debt, and if 75 percent of the total value of the debt is voted in favour of the IVA, then it is approved. Even if the other 25 percent of the value does not approve, the creditors will still have to legally abide by the decision. The creditors could also ask for alterations to the proposal before agreeing to it, but once it has been agreed upon the creditors cannot demand any more payments and the interest rates will become fixed.

An affordable monthly payment is then decided upon based on your individual financial circumstances, and the IP will then become the supervisor of the IVA. All payments will be made on your part to the IP, who will in turn pay the creditors. The IP will often take their own fees from these monthly payments so you shouldn’t have to worry about paying them any extra, although in some cases a separate payment will have to be arranged. If all debts have not been paid of by the end of the IVA timetable then they are written off.