What is an Individual Voluntary Arrangement (IVA)?

What is an IVA

An Individual Voluntary Arrangement (IVA) is a formal debt solution established under the Insolvency Act 1986. This applies to England. It is a legally binding contract between you and your lenders to pay back what you can reasonably afford toward your debts. Instead of dealing with separate demands from each lender, your payments are combined and managed through an independent professional known as an insolvency practitioner.

Because an IVA is legally binding, it stops lenders from taking further recovery action or adding extra interest and charges while the arrangement is in force. Your details are recorded on the public Individual Insolvency Register during the plan. Once you finish all the agreed payments, any qualifying debt left unpaid is cancelled, giving you a chance to rebuild your finances.

How an IVA works

An IVA works by creating an agreed repayment plan that fits your household income and essential costs. You work alongside an insolvency practitioner who examines your budget to see what spare cash you have left each month. A formal written proposal is then prepared and sent to the creditors you owe money to.

The lenders review the proposal and hold a vote. For the plan to be approved, lenders representing at least three-quarters of the total debt value of those who vote must say yes. If approved, even lenders who voted against it or failed to vote are bound by the terms. You then make your agreed payment each month directly to your practitioner, who distributes the money among your lenders after deducting their operational fees.

• Affordable monthly instalments based on your budget, or sometimes a single lump sum
• Full freeze on interest, enforcement action, and extra late fees from included lenders
• Supervision by an insolvency practitioner who carries out regular reviews of your finances
• Discharge of remaining unpaid balances once the agreement finishes successfully

Who is eligible for an IVA

An IVA is designed for people who have unsecured debts across several lenders and have some money left over each month after paying for food, rent, utility bills, and other household essentials. It can also suit someone who has access to a lump sum or assets that could be used to make a settlement offer. If you receive support such as Universal Credit or Personal Independence Payment, those payments can form part of your overall income assessment.

However, an IVA is not suitable for everyone. If your only source of income is state benefits, or if you have no spare money at all, other debt options may be safer. Certain debts cannot be included in an IVA proposal, meaning you must continue to pay them separately.

• Excluded debts: magistrates' court fines and student loan balances
• Excluded debts: Child Maintenance Service arrears or court-ordered maintenance payments
• Excluded debts: ongoing mortgages, rent arrears, and secured loans unless the lender specifically agrees
• Hire purchase agreements: you must check terms carefully as some agreements allow lenders to terminate contracts if you enter insolvency

Pros and cons of an IVA

Before starting an Individual Voluntary Arrangement, it is vital to balance the protections it provides against the restrictions it places on your daily financial life. An IVA can lift the pressure of aggressive debt collection, but it requires years of strict budgeting and honesty about your money.

• Pro: You make a single manageable payment rather than juggling multiple creditors
• Pro: Lenders included in the arrangement cannot take court action, send bailiffs, or add interest
• Pro: Any qualifying debt remaining at the end of the term is written off completely
• Con: Your details appear on the public Individual Insolvency Register while active
• Con: Your credit file is affected for several years, making future borrowing harder and costlier
• Con: If your arrangement fails, lenders can chase you for the full original amounts plus backdated interest
• Con: Setting up and running an IVA involves practitioner fees that are taken from your monthly payments

How to set up an IVA

Setting up an IVA involves several structured stages overseen by legal and debt professionals. You cannot set up an IVA by yourself; it must be submitted and managed by a licensed insolvency practitioner. Before committing, consider seeking free debt advice to confirm that an IVA is truly the best route for your circumstances rather than bankruptcy, a Debt Relief Order, or an informal repayment plan.

1. Work out your detailed household budget, including all sources of earnings, benefit income, and necessary living expenses.
2. Contact a free debt adviser or find an authorised insolvency practitioner to evaluate your paperwork and confirm eligibility.
3. Work with your practitioner to draft an IVA proposal outlining what you can afford to pay each month.
4. Your practitioner submits the proposal to your lenders and organises a formal decision procedure or creditors' meeting.
5. Creditors vote on the plan; once approved by the required majority, the agreement becomes legally active.
6. Make your regular monthly payments to the practitioner, who shares the funds among your lenders until completion.

Be aware that giving false or incomplete information about your assets or earnings to your insolvency practitioner is a criminal offence. If you run into temporary difficulty during the process, speak with your practitioner right away rather than stopping payments.