IVA vs Bankruptcy: 5 Key Things to Know Before You Choose
Published 24th of March 2011·Updated 15 April 2026
Reviewed by: Reviewed for accuracy April 2026
An Individual Voluntary Arrangement (IVA) is a legally binding debt solution that lets you repay a portion of your debts over five or six years, with the remainder written off at the end. It is often considered as an alternative to bankruptcy, but the two options work very differently. Here are five things you must understand before choosing an IVA.
Short Summary
An IVA typically lasts five years, after which any remaining debt included in the arrangement is written off. Homeowners may need to make 12 additional payments if they cannot release equity in year four.
All IVAs must be set up and supervised by a licensed insolvency practitioner (IP). You cannot arrange an IVA yourself.
An IVA stays on your credit file for six years from the date it begins, not from when it ends.
IVAs carry fees, which are usually taken from your monthly payments. Always confirm the fee structure before signing anything.
If you are unsure whether an IVA or bankruptcy is right for your situation, get free advice from StepChange or Citizens Advice before committing.
Your debts are written off after five years (usually)
A standard IVA runs for 60 monthly payments. Once all payments are made, any debt included in the IVA that remains unpaid is legally written off. This is the core appeal of an IVA: you pay what you can afford over five years, and the rest is gone.
However, if you miss payments and your IVA fails, the debt write-off does not apply. Creditors can then pursue the original debt, and interest may be reinstated. This makes keeping up with payments the single most critical requirement of an IVA.
| Feature | IVA | Bankruptcy |
|---|---|---|
| Typical duration | 5-6 years | 12 months (discharge) |
| Debt written off at end | Yes, any remainder included in IVA | Yes, most unsecured debts |
| Effect on property | Equity may be required in year 4 | Trustee may sell your home |
| Credit file impact | 6 years from start | 6 years from start |
| Suitable minimum debt | Typically £10,000+ | No minimum |
| Who administers it | Licensed insolvency practitioner | Official Receiver |
An IVA must be run by a licensed insolvency practitioner
You cannot set up an IVA yourself. A licensed insolvency practitioner (IP) must propose the IVA to your creditors, chair the creditors' meeting, and supervise the arrangement throughout its term. Insolvency practitioners are regulated by recognised professional bodies including the Insolvency Practitioners Association (IPA) and the Institute of Chartered Accountants in England and Wales (ICAEW).
Your IP will assess your income, outgoings, and assets, then propose a monthly payment your creditors are likely to accept. Creditors holding 75 per cent or more (by value) of your debt must vote in favour for the IVA to be approved. A well-presented proposal from an experienced IP significantly improves the likelihood of approval.
Homeowners face an equity release requirement in year four
If you own a home, your IVA will almost certainly include a clause requiring you to attempt to release equity from your property in the fourth year of the arrangement. The idea is that if your home has increased in value, creditors should benefit from some of that equity.
If you cannot remortgage (because your credit score is too low or lenders decline you), your IP will typically extend the IVA by 12 months instead. This means some homeowners end up with a six-year IVA rather than five years. The equity clause is standard and should be explained clearly before you sign any IVA proposal.
IVAs carry fees that reduce what reaches your creditors
IVA fees are significant. They typically include a nominee's fee (charged to assess and propose the IVA), a supervisor's fee (charged annually over the life of the arrangement), and disbursements. These fees are usually paid from your monthly contributions rather than as an upfront charge, but they reduce the amount that actually reaches your creditors.
Some providers, including those who work through debt charities, can arrange IVAs where creditors agree to cover fees as part of the settlement. Before agreeing to an IVA, ask for a full breakdown of all fees and confirm what proportion of your monthly payments will go to your creditors versus the IP's costs. The Insolvency Service publishes guidance on IVA fees at gov.uk/government/collections/insolvency-service.
An IVA affects your credit file for six years from the start
An IVA is registered on the Insolvency Register and recorded on your credit file. The credit impact lasts for six years from the date the IVA begins, regardless of when it ends. If your IVA starts in 2025 and ends in 2030, it will leave your credit file in 2031.
This is the same duration as bankruptcy in terms of credit file impact, though bankruptcy typically discharges in 12 months rather than five years. After the six-year period, both are removed from your credit file. Lenders such as Barclays, HSBC, and Halifax will not see the record after that point, and you can start rebuilding your credit from scratch.
FAQ
What is the difference between an IVA and bankruptcy?
An IVA is a voluntary arrangement between you and your creditors, administered by an insolvency practitioner over five to six years. Bankruptcy is a court process that typically discharges in 12 months but involves an Official Receiver assessing your assets, which may include your home. Bankruptcy can have more severe short-term consequences but may be over more quickly. Neither is inherently "better"; the right choice depends on your debts, assets, and income.
Can creditors reject an IVA?
Yes. Creditors holding at least 75 per cent of the debt by value must vote in favour for the IVA to be approved. If the proposal is rejected, you will need to consider other options, including bankruptcy, a debt management plan, or a debt relief order. An experienced insolvency practitioner will assess whether your proposal is likely to be accepted before submitting it.
Will I lose my home if I enter an IVA?
Not automatically. An IVA is designed to protect your home. However, if your home has equity, you will be expected to attempt to release some of it in year four. If you cannot, the IVA is typically extended rather than your home being at risk. This is a key difference from bankruptcy, where the Official Receiver has more direct powers over your property.
Can I get an IVA if I am self-employed?
Yes. Self-employed people can enter an IVA. Income from self-employment needs to be assessed carefully by the insolvency practitioner to establish what you can afford to pay each month. Business debts can be included in a personal IVA if you trade as a sole trader.
What happens if I cannot keep up with IVA payments?
Contact your insolvency practitioner immediately. A payment holiday or variation may be possible if your circumstances have changed. If the IVA fails, your insolvency practitioner may apply to make you bankrupt on behalf of your creditors. Acting quickly when you have difficulties gives you the best chance of the IVA being modified rather than failing.
Where can I get free advice about IVAs?
StepChange Debt Charity provides free IVA advice and can refer you to a licensed insolvency practitioner. Citizens Advice also offers free debt guidance. The Insolvency Service provides official information at gov.uk/options-for-paying-off-your-debts. Be cautious of commercial debt management companies that charge upfront fees for advice; free guidance is always available first.