An IVA (Individual Voluntary Arrangement) is a formal, legally binding agreement between a person and their creditors to repay debts over a set period, usually five or six years. It is an insolvency procedure supervised by a licensed insolvency practitioner.
This article is information only. It explains what an IVA is and how it works. It is not personal financial or legal advice. If you are dealing with serious debt, speaking to a free debt adviser is a worthwhile first step before making any decision.
What is an IVA?
An IVA is a formal insolvency procedure available in England, Wales, and Northern Ireland. It is a legally binding contract between you and the people or organisations you owe money to (your creditors). A licensed insolvency practitioner (IP) proposes the arrangement on your behalf, and creditors vote on whether to accept it.
If creditors representing 75% or more of the total debt by value vote in favour, the IVA is approved. Once approved, it is binding on all creditors included in the arrangement, including those who voted against it.
What does "formal" and "legally binding" mean in practice?
Unlike informal arrangements or debt management plans, an IVA carries legal weight.
Once an IVA is in place:
- Creditors covered by it cannot take further legal action against you for the included debts.
- The terms are fixed. Creditors cannot demand more than the agreed amount during the arrangement.
- A licensed insolvency practitioner supervises the arrangement for its entire duration. They collect your monthly payments and distribute them to creditors.
The formal nature also means there are firm obligations. Missing payments or failing to disclose a change in financial circumstances can put the IVA at risk of failing.
What are the typical terms of an IVA?
Most IVAs last five years. Some last six years, particularly where a homeowner cannot release equity in the final year (see below on assets).
During the IVA, you make a single monthly payment to the insolvency practitioner. That figure is based on what you can afford after essential living costs. The IP distributes this to your creditors. Any eligible debt remaining at the end of the IVA term is written off.
An IVA usually covers unsecured debts such as credit cards, personal loans, and overdrafts. Secured debts (such as a mortgage) and most priority debts (such as council tax and rent arrears) are generally not included.
How does an IVA affect your assets?
If you own a home, an IVA can have implications for the equity in it.
In many IVAs, you will be asked to remortgage or release equity in the final year of the arrangement. If you are unable to do so, the term is often extended by twelve months in lieu.
Vehicles, savings, and other assets may also need to be declared. The insolvency practitioner will assess these as part of preparing the proposal.
What does an IVA mean for your credit file?
An IVA is recorded on your credit file when it is approved. It stays on your credit file for six years from the date of approval. It is also listed on the Individual Insolvency Register, which is a public record maintained by the Insolvency Service.
During and after the IVA, obtaining new credit, a mortgage, or certain tenancy agreements is likely to be more difficult. Lenders carry out their own checks, and the presence of an IVA on your file is a significant factor in most lending decisions.
What can go wrong with an IVA?
Risks
An IVA is not always the right path, and it carries real risks that are worth understanding before proceeding.
If the IVA fails: If you cannot maintain payments and the IVA is terminated, the protections it provided end. Creditors can pursue the original debts again. In some cases a failed IVA leads to bankruptcy proceedings.
If your circumstances change: An IVA has some flexibility, but significant changes in income (up or down) affect the arrangement. If income rises, you may be required to increase payments. If income falls sharply, the IVA may break down.
Cost of the arrangement: Insolvency practitioners charge fees for setting up and supervising an IVA. These fees are typically taken from your monthly payments before the money is distributed to creditors. It is worth asking for a clear breakdown of fees before agreeing to any proposal.
Longer debt period: An IVA spreads repayment over several years. For some people, a shorter arrangement such as a Debt Relief Order (DRO) or bankruptcy may be resolved more quickly, though those come with their own implications.
Risk of IVA firms operating commercially: Some IVA providers operate commercially and are paid from your payments. Free debt advice services can help you understand all available options before choosing an IVA or any other route.
How does an IVA compare to other debt options?
An IVA is one of several formal and informal debt options available in the UK. A brief comparison:
| Option | Typical term | Legally binding? | Suitable if you own a home? |
|---|---|---|---|
| IVA | 5 to 6 years | Yes | Possible, with asset implications |
| Debt Management Plan (DMP) | Varies | No (informal) | Yes, home not at risk from DMP itself |
| Debt Relief Order (DRO) | 12 months | Yes | No, assets above £2,000 disqualify |
| Bankruptcy | Usually resolved in 1 year | Yes | Home at greater risk |
Each option has different eligibility criteria, costs, and implications. A free debt adviser can explain which options apply to your situation.
Where to get free debt advice
Before agreeing to an IVA or any formal debt solution, speaking to a free, impartial debt adviser is a sensible step. These organisations offer free confidential advice and will not charge you:
- StepChange Debt Charity, 0800 138 1111 (free, including from mobiles) or online at stepchange.org
- National Debtline, 0808 808 4000 (free, including from mobiles)
- MoneyHelper, 0800 138 7777 (free service backed by the government)
Free advisers can help you understand all available options, including whether an IVA is appropriate for your circumstances.
Frequently asked questions
How long does an IVA last?
Most IVAs run for five to six years. The most common term is five years, but if you own a property you may be asked to release equity in the final year, or the term may be extended by twelve months if that is not possible.
Does an IVA affect your credit rating?
Yes. An IVA is recorded on your credit file and remains there for six years from the date it is approved. This typically makes it harder to obtain credit, a mortgage, or certain types of rental agreement during that period.
What happens if an IVA fails?
If you cannot maintain the agreed payments and the IVA fails, creditors can pursue the original debts again. In some cases this leads to bankruptcy. Speaking to a free debt adviser before the IVA breaks down can help you understand the options available.
Is an IVA the same as bankruptcy?
No. Both are formal insolvency procedures, but they work differently. Bankruptcy is usually resolved within a year, whereas an IVA is an arrangement with creditors that typically lasts five or six years. An IVA may be preferable if you own a home, as bankruptcy can put a property at greater risk.
Who sets up an IVA?
An IVA is set up by a licensed insolvency practitioner (IP). The IP acts as the supervisor of the arrangement throughout its term and distributes payments to your creditors on your behalf.
Can creditors refuse an IVA?
Creditors vote on whether to accept the proposed arrangement. If creditors representing 75% or more of the total debt by value vote in favour, the IVA is approved and becomes binding on all creditors included in it, even those who voted against.
Related guides and tools
- Debt consolidation guide
- Debt management plan, glossary
- Individual Voluntary Arrangement, glossary
- Debt Relief Order, glossary
- Breathing Space, glossary
- How long does an IVA last?
Most IVAs run for five to six years. The most common term is five years, but if you own a property you may be asked to release equity in the final year, or the term may be extended by twelve months if that is not possible.
- Does an IVA affect your credit rating?
Yes. An IVA is recorded on your credit file and remains there for six years from the date it is approved. This typically makes it harder to obtain credit, a mortgage, or certain types of rental agreement during that period.
- What happens if an IVA fails?
If you cannot maintain the agreed payments and the IVA fails, creditors can pursue the original debts again. In some cases this leads to bankruptcy. Speaking to a free debt adviser before the IVA breaks down can help you understand the options available.
- Is an IVA the same as bankruptcy?
No. Both are formal insolvency procedures, but they work differently. Bankruptcy is usually resolved within a year, whereas an IVA is an arrangement with creditors that typically lasts five or six years. An IVA may be preferable if you own a home, as bankruptcy can put a property at greater risk.
- Who sets up an IVA?
An IVA is set up by a licensed insolvency practitioner (IP). The IP acts as the supervisor of the arrangement throughout its term and distributes payments to your creditors on your behalf.
- Can creditors refuse an IVA?
Creditors vote on whether to accept the proposed arrangement. If creditors representing 75% or more of the total debt by value vote in favour, the IVA is approved and becomes binding on all creditors included in it, even those who voted against.