How Will an IVA Affect Me? A Plain-English Guide to the Impact

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay a portion of your debts over a fixed period, typically five or six years. Any remaining unsecured debt included in the IVA is written off at the end. An IVA will affect your credit file, restrict your ability to borrow, require you to declare any financial windfalls, and may affect your employment - so it is a serious step that needs careful consideration.

How does an IVA affect your credit score?

An IVA will cause significant damage to your credit score. Your creditors will typically register defaults on your credit file when the IVA begins, and the IVA itself is noted on the Insolvency Register, which the credit reference agencies - Experian, Equifax and TransUnion - link to your credit file.

These marks remain for six years from the date the IVA starts. If your IVA runs for five years and then completes, the credit file entries will remain for one further year after completion. During this period, mainstream lenders including high-street banks and building societies will generally decline applications for significant credit.

Can an IVA affect your job?

Yes, in some circumstances. Many employment contracts contain clauses that restrict you from continuing in the role if you become subject to an insolvency arrangement. This is particularly common in financial services (regulated by the FCA), accountancy, law, the police, the armed forces, and some civil service roles.

Before starting an IVA, read your employment contract carefully and check whether your professional regulatory body has any rules. If you are a director of a company, an IVA does not automatically disqualify you from that role, but individual shareholders or articles of association may have provisions that affect you.

If you are unsure, speaking to your HR department or a trade union representative before committing to an IVA is strongly advisable.

What financial restrictions does an IVA place on you?

During an active IVA, you must live within a budget agreed with your insolvency practitioner. The key financial restrictions are:

You cannot take on new credit above £500 without your insolvency practitioner's permission. This covers loans, credit cards, overdrafts and hire purchase agreements.

You must declare any change in financial circumstances to your IP. This includes pay rises, bonuses, inheritance, lottery winnings and any other windfall. If your income increases materially, your monthly IVA payment may be reviewed upward. If you receive a lump sum, a portion of it may be required to contribute to the IVA.

You must make your agreed monthly payment on time. Missing payments can cause the IVA to fail, which typically results in creditors reverting to their original debt recovery rights.

Does an IVA affect your home?

An IVA does not normally result in you losing your home, but there is a key exception. If you own property with equity, your IVA terms will usually require you to attempt to remortgage in the final year of the arrangement to release equity for your creditors.

The standard position, as set out in the IVA Protocol (the framework followed by most insolvency practitioners), is that you should not be required to remortgage to more than 85 per cent of the property's value. If remortgaging is not possible - for example, because lenders will not offer a mortgage to someone with an active IVA - you may instead be required to make additional monthly payments for up to 12 months in lieu of the equity.

If you are a tenant, your IVA does not affect your tenancy directly, though some private landlords include insolvency clauses in their tenancy agreements.

Does an IVA affect your car?

In most cases, you will be allowed to keep a car of reasonable value for work and daily living. If your car is worth significantly more than is necessary, your insolvency practitioner may ask you to sell it and replace it with a less expensive model, with any surplus paid into the IVA.

If your car is on a hire purchase or finance agreement, the position is more complex. The finance company technically owns the car and the agreement is separate from your IVA. Most IPs will allow you to continue HP payments if the car is necessary for work, but you should discuss this with your IP before the IVA starts.

What happens at the end of an IVA?

Once you complete all required payments and your IP confirms the IVA is finished, your remaining unsecured debts included in the arrangement are legally written off. Your IP issues a completion certificate and notifies the Insolvency Register, which removes your entry within three months.

The defaults and other credit file entries from the start of the IVA remain until six years from when they were recorded. After that, they drop off automatically and your credit file is clear of the IVA's impact.

FAQ

Is my IVA publicly visible?

Yes. The Insolvency Register at gov.uk/search-bankruptcy-insolvency-register is publicly searchable by anyone. Your full name, date of birth and address at the time of the IVA are listed. The entry is removed three months after the IVA completes. Local newspapers occasionally publish insolvency notices, though this is less common than it once was.

What happens if I cannot keep up with IVA payments?

Missing IVA payments is serious. Your IP will usually allow a short period to catch up, but if payments fall significantly behind, the IVA can fail. A failed IVA means creditors are free to pursue the original debts again, with only the payments already made deducted. In some cases, the IP may petition for your bankruptcy. Contact your IP immediately if you are struggling to pay.

Can I get a mortgage after an IVA?

Yes, but not until the six-year credit file impact has passed or reduced sufficiently. Some specialist "adverse credit" mortgage lenders will consider applications from people who have completed an IVA, even while entries remain on the file, but the rates are higher and deposits required are larger. Most people in this position benefit from using a whole-of-market mortgage broker.

Can I include all types of debt in an IVA?

No. Certain debts cannot be included in an IVA: student loans, child maintenance arrears, magistrates' court fines, and debts incurred through fraud are all excluded. Secured debts - such as a mortgage - are also excluded; you must continue to make these payments separately.

What is the minimum debt level required for an IVA?

There is no legal minimum, but in practice most insolvency practitioners will not set up an IVA for debts below £10,000 to £15,000, as the costs of the arrangement relative to the debt level make it impractical. For smaller debts, a debt management plan or debt relief order may be more appropriate.

How much does an IVA cost?

IVA fees are paid from within your monthly payments rather than as an additional charge. Your IP takes a nominee's fee (typically £1,000 to £2,000) and a supervisor's fee (usually a percentage of the total funds distributed) from the payments you make. Creditors receive what remains after fees. The fees are set out clearly at the start of the IVA and must be approved by creditors.