IVAs: Individual Voluntary Arrangements

What is an IVA?

“IVA” means Individual Voluntary Arrangement: It is seen as an alternative to bankruptcy which was introduced in 1986. (Rather than simply writing off your debts, you pay what you can on a monthly basis). It is a five-year agreement between the borrower and their creditors and it is legally binding, making it different to a ‘Debt Management Plan’ -which also requires monthly payments to creditors, but is not legally binding.

Who would apply for an IVA?

Anyone with debts over £15,000, (sometimes £20,000) may be accepted for an IVA. People who would rather avoid bankruptcy may see this as the best alternative as it doesn’t look as serious on a credit file as creditors will appreciate that the customer did their best to repay their debts. They are available to those who live in England, Wales or Northern Ireland. They are not available to those who live in Scotland, where their closest ‘equivalent’ would be a ‘Protected Trust Deed’.

How can I apply for an IVA?

As an IVA is legally binding, it is advisable that anyone in financial difficulties consults a debt advisor that doesn’t stand to make any profit from the individual’s circumstances. Examples of trusted, government run third party debt management companies that have such advisors are: CCCS (consumer credit counselling service), Payplan, National Debt Line, Christians against poverty, CAB (citizen’s advice bureaux).

If you and your advisor agree that an IVA is the best option, you will be directed to an IVA company that will provide you with representation in the form of an Insolvency Practitioner (a solicitor or chartered accountant that will liaise with your creditors.)

What debts are IVAs able to clear?

IVAs can only help with unsecured debts; so, credit and store cards, overdrafts and unsecured loans including student loans.

Mortgages and any other loan that may be secured on property cannot be resolved through an IVA. Also rent and council tax arrears are excluded, along with court fines, parking/speeding tickets and Maintenance/Child support agency arrears.

In IVA advertising, some claims have been deemed unrealistic with regards to the amount of debt that can be written off, which the office of fair trade is looking into. However it is accepted that a realistic amount of debt that may be cleared at the end of the 5 year term, therefore ‘written off’ can be as much as 60% when an individual has larger debts.

Advantages and Disadvantages of IVAs


  • Those who have agreed to an IVA are more likely to be able to keep your house and car versus those who are granted bankruptcy.
  • Restrictions on a credit file following an IVA are tough, but not as tough as with bankruptcy and it will always be visible on a credit file.
  • If your creditors agree to the IVA, interest will be frozen on the affected credit facility for the full 5 years/as long as the minimum payments are being adhered to.
  • After the 5 year term of the IVA, any outstanding debt is cancelled.


  • The client will need to release any equity in their house/property to pay the debts through the IVA. Similarly, if you have an endowment policy linked to your mortgage, you may be asked to cash this in, and surrender the proceeds to the IVA.
  • IVAs are not free, there are set-up fees which IVA companies make a substantial profit from, which is why so many IVA companies are in operation, and why they advertise so frequently. They typically cost around £7500, this includes the annual supervision of the agreement as well as the set-up or ‘nominee fee’. Typically, these fees are taken from the monthly instalments you make through the arrangement, monthly instalments are normally £200.
  • Any inherited or acquired wealth will have to go into the arrangement to pay the creditors as any change in circumstances has to be accounted for and the minimum monthly repayments revised accordingly.
  • Private pensions may be affected (you may have to pay the pension contribution into the arrangement for the duration of the 5 years.)

An IVA can only be successful if it can be adhered to, the minimum payments agreed for each month of the 5 years must be honoured. Many people who see an IVA as the best option are unable to keep up to the minimum payments and therefore end up being made bankrupt even after paying any fees charged. Failure to make payments could result in being deemed in default and bankruptcy proceedings may be started.

It is not guaranteed that an IVA is accepted by creditors, they may refuse to accept terms proposed by your IP or ‘Insolvency Practitioner’. Before an IVA is finalised, all affected creditors will vote on whether or not they accept, the vote has to be 75% ‘by value’ (‘by value’ means 75% of the total debt, not 75% of creditors). If the vote is reached, any creditors that voted against are still bound by the IVA.