Struggling with overwhelming debt can feel like carrying a heavy weight you can’t put down. For many in the UK, an Individual Voluntary Arrangement (IVA) offers a structured way to regain control of their finances while avoiding the harsher consequences of bankruptcy. 

This debt solution is legally binding and could give you the respite you need when creditors are pressing for repayment.

In this article, we’ll cover everything you need to know about an IVA, from the basic IVA meaning, to how it works in practice. You’ll learn who qualifies, what debts can be included, the pros and cons, and how it compares with other debt solutions. 

By the end, you’ll have a clear picture of whether an IVA is the right step for your situation.

How an IVA Works

When faced with unmanageable debt, an IVA can provide structure and relief. In simple terms, it is a legally binding agreement between you and your creditors, where you agree to make affordable repayments over a set period, usually five to six years, and once the term ends, remaining unsecured debt included in the arrangement is written off.

IVA explained step by step

An IVA works in stages. First, your level of affordability is reviewed, under guidance of a licensed insolvency practitioner (IP) or their team, and you agree on what you can realistically afford to pay. 

They then deal directly with your creditors on your behalf. If they approve the arrangement, your payments are collected by the IP and shared among the creditors. During the IVA, interest and charges are frozen, and creditors cannot pursue you for further action on any debt included within the arrangement.

• You make one monthly payment (or sometimes a lump sum).
• Creditors stop chasing and freeze interest.
• The IP distributes money fairly between creditors.

This stability can make a huge difference for people who feel trapped in debt. But not everyone qualifies, and that’s important to know before considering it.

Who can have an Individual Voluntary Arrangement in the UK?

An IVA is most suitable for people with multiple unsecured debts and a steady income. If you are employed or self-employed and can commit to regular payments, it could be the right solution. Homeowners often choose an IVA over bankruptcy because it offers a chance to protect their property.

However, if your income is very low or you have few assets, another debt solution may be more appropriate. That’s why it is important to check whether your debts can actually be included.

Debts included and excluded

An IVA can cover a wide range of unsecured debts, but not everything qualifies.

• Included debts: credit cards, overdrafts, personal loans, store cards.
• Excluded debts: student loans, child maintenance, secured loans, court fines.

Knowing this difference helps you see whether an IVA, when explained in practical terms, fits your financial situation. Once you’ve checked this, the next step is setting up the arrangement, and that’s where the process gets more detailed.

1. Starting an IVA

Beginning an IVA is more than just agreeing to pay off debts. It requires a formal process overseen by a licensed insolvency practitioner, to guide you through every stage.

Role of the insolvency practitioner

The IP is the professional who makes the IVA possible. Under their license, the team reviews your finances, advises whether an IVA is suitable for you and if this is the solution you choose, and draft the IVA proposal to present to your creditors. Once the IVA is approved, they handle payments, distribute money to creditors, and make sure both sides follow the terms of the agreement.

Think of the IP as the middle link between you and your creditors. Without them, the arrangement would not carry legal weight. But having a skilled IP is only part of the process, your proposal also needs creditor approval.

Proposal and creditor approval process

The IVA proposal is the formal document prepared by your IP. It outlines your repayment plan, your financial circumstances, the debts included, and what creditors will receive. This is sent to creditors for a vote.

• At least 75% (by debt value) of creditors who choose to vote must agree.
• Once approved, all included creditors are legally bound.
• If rejected, you may need to consider another debt solution.

This step is critical. If the creditors accept, you gain legal protection and a clear repayment structure. If not, other options must be explored. Either way, this decision shapes the next stage of your debt journey, and that’s where payments and costs come into focus.

Payments and Costs

When you enter into an IVA, one of the first questions you’ll likely have is how much it will cost? The truth is that payments are based on what you can reasonably afford rather than a fixed amount. Your insolvency practitioner (IP) will review your income, expenses, and any assets to decide what is sustainable.

Monthly or lump-sum payments

Most people make monthly payments over five or six years, providing consistency and a clear schedule. However, in some cases, an IVA can be funded by a lump sum, often from selling an asset or receiving money from a family member. The right option depends on your financial situation and what your creditors are willing to accept.

• Monthly payments: steady contributions spread over years.
• Lump sum: one larger payment to close the IVA sooner.

Fees and what happens if income changes

Fees are included as part of an IVA, but you don’t pay them separately. Instead, they come out of your regular payments. These fees cover the insolvency practitioner’s work in setting up and managing the arrangement for its duration.

Life, however, is rarely predictable. If your income changes, whether through a pay rise, reduced hours, or unexpected expenses, your IVA can sometimes be adjusted. Annual reviews are carried out to check whether payments should increase or decrease. In more serious cases, a variation meeting with creditors may be needed to approve changes.

Managing payments is just one side of the IVA. Equally important is what happens during the arrangement itself, and that’s where protection, reviews, and responsibilities come in.

2. During the IVA Term

Once your IVA is in place, day-to-day life changes in noticeable ways. You no longer face constant pressure from creditors, but you do have clear responsibilities to follow which you will be informed about.

Protection from creditors

One of the biggest benefits of an IVA is the legal protection it offers. Creditors cannot chase you for payments, add further interest, or take legal action for debts included in the IVA while the arrangement is active. For many, this brings much-needed peace of mind.

Reviews and obligations

Each year, your insolvency practitioner will carry out a financial review. This ensures you are paying what you can realistically afford. If your situation improves, your payments may go up. If it gets worse, adjustments can be requested.

As part of your obligations, you must:

• Make agreed payments on time.
• Provide honest information about income and expenses.
• Inform your IP about major financial changes.

These commitments keep the arrangement running smoothly. Failing to stick to them can put the entire IVA at risk.

Risk of default

If you miss several payments or fail to follow the terms, your IVA may fail. This can have serious consequences, such as creditors regaining the right to pursue you or even pushing for bankruptcy. That’s why it’s vital to communicate with your IP if difficulties arise, often, a solution can be negotiated before the IVA collapses.

The IVA term is therefore a balancing act: you get protection and a clear path forward, but you must stay committed. And once the term ends, the question becomes, what happens next?

3. Finishing or Failing an IVA

Completing an IVA and becoming debt free is the moment many people work towards for years. After making all agreed payments, you can finally see the light at the end of the tunnel. However, it’s important to know both what completion looks like and what happens if things don’t go as planned.

What happens when the IVA is completed

Once all payments are made and all obligations complied with, your IVA can proceed to completion. Creditors included in the arrangement are legally barred from asking for further repayment, and any remaining balance of your included unsecured debts are cleared. 

Completion usually involves a final review by your insolvency practitioner, ensuring that all payments have been made and accounted for and then you will be issued with a Certificate of Completion.

Consequences of failure

If you fail to stick to the terms, your IVA can be terminated. Consequences include:

• Creditors regaining the right to pursue payment
• Possible bankruptcy proceedings
• Damage to your financial reputation

This is why regular communication with your insolvency practitioner is essential, most problems can be resolved before reaching failure.

Pros and Cons of an IVA

Considering an IVA requires understanding both the benefits and drawbacks. While it provides a structured solution to debt, it’s not without limitations. Despite the earlier explanations touched on the main positives and challenges of entering into an IVA, The following section summarises them so you can review the overall picture at a glance.

Key advantages

IVAs offer several clear benefits:

• Legal protection from creditors while the IVA is active
• Structured, manageable repayments
• Avoids the immediate severe consequences of bankruptcy
• Provides a clear path to becoming debt-free

Main disadvantages

Despite these advantages, IVAs have some downsides:

• They remain on your credit file for six years after the IVa has finished, which could affect borrowing
• Insolvency practitioner fees reduce the total payments going to creditors
• Missing payments or failing to follow the agreement can result in termination
• Not all debts can be included

..

Conclusion

An IVA can be a powerful tool for anyone struggling with unmanageable debt. It offers a structured, legally binding arrangement that allows you to make affordable repayments over several years, while protecting you from creditor action. 

By the end of the arrangement, included unsecured debts are cleared, giving you the chance to start afresh and regain control of your finances.

While IVAs provide clear benefits, such as legal protection and manageable repayments, they are not without drawbacks. The arrangement affects your credit rating for six years, includes fees, and requires adherence to the agreed arrangement.

Failing to meet the terms can lead to serious consequences, including the possibility of bankruptcy. For these reasons, it’s important to carefully consider whether an IVA is the right debt solution for your individual circumstances.

Ultimately, an IVA is not just about paying off debt, it’s about gaining a realistic and supported path to financial stability. By understanding how it works, who can qualify, what debts are included, and how it compares with other debt solutions, you can make an informed decision that suits your situation. 

Seeking advice from a licensed insolvency practitioner or a reputable debt advice service can provide clarity and ensure you choose the option that will help you rebuild your financial future with confidence.

Key Points

• An IVA (Individual Voluntary Arrangement) is a legally binding agreement between an individual and their creditors to repay debts over a fixed period.
• IVAs provide protection from creditor action, including frozen interest and no legal pursuit while the arrangement is active.
• The arrangement is suitable for people with multiple unsecured debts, a steady income, and some disposable income to make regular payments.
• Not all debts can be included in an IVA; included debts typically cover credit cards, personal loans, overdrafts, and store cards, while excluded debts include student loans, court fines, and secured loans.
• A licensed insolvency practitioner (IP) manages the IVA, including assessing finances, preparing the proposal, and distributing payments to creditors.
• Creditors must approve the IVA proposal, with at least 75% (by debt value) agreeing for it to become legally binding.
• Payments can be made monthly or as a lump sum, and fees for the IP are included in these payments. Adjustments can be made if income changes.
• During the IVA term, individuals must meet their obligations, provide documents for annual reviews, and maintain communication with the IP to avoid default.
• Completing an IVA results in any outstanding included unsecured debts being written off if eligible and requirements are met, while failure to adhere to the terms can lead to termination, creditor action, or bankruptcy.
• IVAs have both advantages (structured repayment, legal protection, debt relief) and disadvantages (impact on credit rating, fees, not all debts included), making careful consideration and professional advice essential.

FAQs

Will an IVA affect my credit rating?

Yes, an IVA will appear on your credit file for six years from the start date, this means that once your IVA ends you will need to rebuild your credit rating.

What happens if I miss a payment during my IVA?

If you miss a payment, it’s crucial to contact your insolvency practitioner immediately. They may offer solutions such as a payment break or reduced payments, depending on your circumstances.

Can I include a business loan in my IVA?

If you’re a sole trader, business debts like loans or credit cards can be included in your IVA. However, if your business is a limited company, business debts are typically excluded.

What happens when my IVA is completed?

Upon successful completion, the balance of any remaining eligible unsecured debts included in the IVA are written off.