How Does an IVA Work? A Plain-English Guide to Individual Voluntary Arrangements

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your unsecured creditors to repay a portion of your debts over a fixed period, typically five or six years. A licensed insolvency practitioner (IP) sets it up on your behalf. Once approved by creditors holding 75 per cent of your debt by value, every creditor is legally bound by the terms, including those who voted against it.

What debts can be included in an IVA?

An IVA can include most types of unsecured debt. The following can typically be included:

• Credit cards
• Personal loans
• Overdrafts
• Store cards and catalogue debt
• HMRC debts, including tax and VAT arrears
• Utility bill arrears
• Money owed to friends or family (with their agreement)

The following cannot be included in an IVA:

• Mortgage or secured loan arrears
• Hire purchase agreements
• Student loans
• Court fines
• Child support arrears
• Debts incurred through fraud

How does the IVA process work step by step?

Step 1: Statement of Affairs You provide your insolvency practitioner with a detailed picture of your finances, including income, essential expenditure, assets, liabilities and creditor details. This document forms the basis of your IVA proposal.

Step 2: Interim Order (if needed) If your creditors are taking legal action, your IP can apply to the court for an Interim Order. This legally suspends all proceedings against you while your proposal is being prepared. Not every IVA requires this step.

Step 3: Proposal sent to creditors Your IP sends a formal proposal to each creditor, the Insolvency Service and the local county court. Creditors are given at least 14 days to review the proposal and suggest amendments before the meeting.

Step 4: Meeting of Creditors (or virtual decision procedure) Creditors vote on your proposal. A majority of 75 per cent by debt value must agree for the IVA to be approved. If approved, all creditors including those who voted against are legally bound. In practice, many IVAs are now approved through a virtual decision procedure rather than a physical meeting.

Step 5: Supervisor appointed and repayments begin Your IP becomes the supervisor of your IVA and monitors your monthly payments. You make one payment each month throughout the term. At the end of the term, the supervisor confirms completion and any remaining included debt is legally written off.

What happens if my circumstances change during an IVA?

You must inform your supervisor if your financial situation changes significantly. If your income rises, you may be required to increase your monthly payment. If you receive a windfall such as an inheritance or bonus, you may be required to pay a portion towards your IVA. The threshold for windfalls varies by IVA terms but is typically anything over £500.

If your income drops and you can no longer afford the agreed payment, you can apply to vary the IVA. Your supervisor and creditors must agree to any material changes. If circumstances change so dramatically that no modified arrangement is possible, the IVA may fail, which can lead to bankruptcy proceedings.

What does an IVA cost?

IVA fees come out of your monthly payments. You do not pay them upfront. The typical cost structure is:

• Nominee fee: covers the work of preparing and presenting your proposal (typically £1,000 to £2,000)
• Supervisor fee: charged as a percentage of payments received throughout the IVA term (typically 15 to 20 per cent)

These fees reduce the amount your creditors receive, which is why creditors still prefer an IVA over bankruptcy in many cases, as they tend to recover more money.

How do I find a reputable insolvency practitioner?

All IPs must be licensed by a recognised professional body such as the Insolvency Practitioners Association (IPA) or the Institute of Chartered Accountants in England and Wales (ICAEW). You can search for authorised IPs on the government's register at gov.uk.

Free charities including StepChange can refer you to a licensed IP at no upfront cost. Be cautious of any company that charges high upfront fees before your IVA is even approved.

FAQ

How long does an IVA last?

Most IVAs last five years (60 monthly payments). If you own a home with equity, you are usually required to attempt to remortgage in the final year to release equity towards your IVA. If remortgaging is not possible, the IVA is often extended by 12 months, making the total term six years.

Can creditors reject my IVA?

Yes. Creditors holding 75 per cent of your debt by value must approve it. In practice, most creditors accept reasonable proposals because they receive more money from an IVA than from bankruptcy. If your proposal is rejected, your IP will advise on alternatives.

Will an IVA affect my job?

IVAs can affect jobs in finance, law, accountancy, the police and armed forces. Some employment contracts contain clauses about insolvency. Check your contract and speak to your HR department confidentially before proceeding. Most jobs are unaffected.

Can I get credit during an IVA?

No. You cannot take out credit of more than £500 without your supervisor's permission during an active IVA. This is a condition of the arrangement and breach can cause it to fail.

What happens if I miss payments on my IVA?

Missing payments can cause your IVA to fail. If this happens, your IP will attempt to contact you and may allow a short payment holiday or vary the terms. However, a persistently failed IVA can lead to bankruptcy. Contact your supervisor immediately if you think you are going to miss a payment.

Is an IVA better than bankruptcy for me?

An IVA is generally better if you have a regular income, assets worth protecting (such as a home), or a job that would be affected by bankruptcy status. Bankruptcy is often better if you have no income, no assets and need a quicker resolution. Both have serious consequences and you should take free advice from StepChange or Citizens Advice before deciding.