What is an Individual Voluntary Arrangement (IVA)?

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.

Some of the Pros and Cons of an IVA

Although you may be keen to jump straight into sorting out an IVA, you should carefully consider the following pros and cons before you make any decision. Although it can provide a fantastic means of getting rid of your debts, there are always some downsides that will need to be weighed up.


  • One of the main reasons for taking out an IVA is that you will usually end up paying less back to your creditors overall, depending on your financial situation. As well as making lower monthly payments, after the IVA comes to an end any remaining debt will be written off.
  • IVAs provide a fixed timetable for repayments, meaning you will know that at the end of five years you will be debt free. This provides peace of mind and the knowledge that you will soon be able to get on with your life without the burden of debts.
  • An IVA is a formal agreement and is legally binding, which means you will never face any further legal action unless you fail to make your payments.
  • The IVA is a private agreement, unlike bankruptcy, and your professional status will therefore remain unaffected.
  • Interest on your repayments will be frozen and no further charges can be made by the creditors as long as your make your monthly payments.
  • You can still take out or change a mortgage while on an IVA, and you will also be granted a greater degree of control over your assets including your home.
  • You will not have to deal with any of your separate creditors, which means you will not receive any more repayment requests.


  • IVAs are only available for unsecured debts over a certain value, which is usually stipulated as around £12,000 or £15,000.
  • During the lifetime of the agreement, which is five years, you will not be able to take out any further unsecured loans.
  • You will be required to make monthly payments in excess of £180 or £200, which means the IVA is not suitable for people who cannot manage to meet these payments.
  • Your credit rating will suffer as a result of taking out an IVA, and it will be hard to get any further credit for a while after the IVA has come to an end.
  • Although you will have a greater degree of control over any property that you own, you may have to release any equity on it as part of the agreement, as well as on any other valuable assets you own.
  • Although some debt may end up being written off, you will still be required to pay back significant amounts of debt, as opposed to bankruptcy where you might only have to pay back very little.
  • The IVA lasts for five years, as opposed to bankruptcy which can last as little as one year.

Would you be Suitable for an IVA?

An IVA provides a great way for debts to be paid off over a set time period, and a lot of debt can often be written off. However, it still requires careful consideration before you decide to go ahead with one.

You should always seek professional advice from a debt agency or a charity such as the Consumer Credit Counselling Service (CCCS) before making the decision, as they will examine your personal situation and will be able to advise you on whether it is the right course of action for you to take.

There are certain requirements that have to be taken into account for anyone wishing to enter into an IVA. The exact conditions vary between agencies, but it is usually stipulated that you need to be over £15,000 in debt and owe money to at least three different creditors before you can go ahead with an IVA. This is only a guideline, but if you do not fit these requirements then another form of debt management may be a better option for you.

If you are considering taking out an IVA, you will almost certainly be experiencing difficulties in paying back all of your separate creditors. However, you have to remember that after taking out an IVA you will still be required to make monthly payments, even though these are likely to be smaller. The general condition is that you will have to be able to afford to pay back around £200 a month in repayments, but again this is flexible depending on your financial circumstances, and payments can sometimes change throughout the course of the IVA.

As with many other debt repayment schemes, the types of debts that you have are also relevant. The IVA is only suitable for unsecured debts, meaning any loans that are not secured against the value of your house or car. For example, credit cards, store cards and overdrafts will all be covered. If you have secured debts, or other debts such as council tax arrears and rent, then these will not be covered and an IVA is not going to be the solution for you.

Although the IVA is often a preferable course of action to going bankrupt, it does come with some disadvantages. To start with you will be on the programme for five years, and you will also have to pay back considerably more of your debts than you would have to if you went bankrupt. The decision therefore has to be taken in regards to your personal financial situation.

If you own a property, the IVA is often a preferable alternative to bankruptcy because you will be granted greater control over it. However, you should be aware that any equity you have on it may have to be released as part of the agreement.