What Are the Risks of an IVA? Honest Guide to IVA Disadvantages
Published 19th of September 2016·Updated 2 April 2026
Reviewed by: Reviewed for accuracy April 2026
An IVA is a serious insolvency solution and it carries real risks that you must understand before proceeding. Your credit file is affected for six years, you must live on a strict budget for up to five years, you may be required to release equity from your home, and if the IVA fails, you may face bankruptcy. Anyone considering an IVA should take free advice from StepChange or Citizens Advice first.
Short Summary
An IVA appears on your credit file for six years from the date it begins. During this period, borrowing is severely restricted. Most mainstream lenders will not approve credit applications while an IVA is active.
You must live within a tightly controlled budget for the full term of the IVA, typically five years. Any windfall, bonus, pay rise, or inheritance above a set threshold must be declared and may increase your monthly payments.
If you own a home, you will usually be asked to release equity by remortgaging in the final year of the IVA. If you cannot remortgage, the IVA term is extended by one year instead.
Certain professions, including some roles in financial services, law, and the police, have employment restrictions attached to IVAs. Check your contract before proceeding.
If an IVA fails because you cannot maintain payments, you may be made bankrupt by your creditors. The setup fees already paid to the insolvency practitioner are added to your debt at that point.
Will an IVA damage your credit score?
Yes. An IVA is recorded on your credit file for six years from the date the arrangement begins. It is also listed on the public Insolvency Register for the duration of the arrangement.
During those six years, you will find it very difficult to get a mortgage, credit card, personal loan, or even some mobile phone contracts. Most high-street lenders, including Barclays, HSBC, Santander, and Nationwide, will not lend to someone with an active IVA on their file. Some specialist lenders do offer mortgage products to people with IVAs, but these come with significantly higher interest rates.
Is there any risk that an IVA will be rejected?
Yes. An IVA proposal is put to your creditors by your insolvency practitioner. Creditors representing at least 75 per cent of your total debt by value must vote in favour for the IVA to proceed. If creditors reject the proposal, you will need to consider alternative options.
In practice, many IVA proposals are accepted because creditors recognise they will likely receive more through an IVA than through bankruptcy. However, if one large creditor (such as HMRC for tax debts) holds more than 25 per cent of your total debt and votes against, the IVA cannot proceed without modification.
Could you lose your job because of an IVA?
Some employment contracts and professional licences include clauses restricting the holder from entering insolvency proceedings. Roles in financial services regulated by the FCA or PRA, solicitors regulated by the Solicitors Regulation Authority, police officers, and certain roles in the armed forces may all carry such restrictions.
An IVA does not automatically mean you will lose your job, but it can in specific circumstances. Check your employment contract carefully and, if there is any doubt, seek independent legal advice before applying for an IVA.
Do you have to remortgage your home during an IVA?
Probably, unless your home has no equity. In the final year of a standard five-year IVA, your insolvency practitioner will ask you to obtain a mortgage valuation and attempt to remortgage to release equity for your creditors.
If you cannot remortgage because your credit history makes it impossible, the IVA is typically extended by 12 months instead. You will not usually be forced to sell your home, but the remortgage requirement is a real and often overlooked aspect of the IVA process. The additional debt secured against your home means your mortgage costs may increase.
How does an IVA restrict your spending?
You must live within a budget approved by your insolvency practitioner throughout the IVA. Essential costs (rent or mortgage, food, utilities, council tax, transport) are protected, but discretionary spending is tightly controlled.
Any increase in income above a certain threshold, typically around 10 per cent, must be reported. Your payments may then increase to pass some of that extra income to creditors. The same applies to windfalls: if you receive an inheritance, compensation payment, or any lump sum, you may be required to hand a significant portion to your insolvency practitioner for distribution to creditors.
What are the risks compared to alternative solutions?
| Risk | IVA | DMP | Bankruptcy |
|---|---|---|---|
| Credit file damage | 6 years | Per default (up to 6 years) | 6 years |
| Home at risk | Equity release required | No | Possible sale |
| Job restrictions | Some professions | None | More extensive |
| If arrangement fails | Possible bankruptcy | No formal consequence | Not applicable |
| Public record | Yes (Insolvency Register) | No | Yes (Insolvency Register) |
What happens if an IVA fails?
If you miss payments and cannot agree a variation to the IVA terms with your insolvency practitioner, your IVA can be terminated. At that point, your creditors can petition for your bankruptcy.
If you are made bankrupt after a failed IVA, the fees paid to the insolvency practitioner for setting up the IVA are treated as an additional debt in the bankruptcy. The debts that were paused during the IVA are reinstated, potentially with interest. This is a serious outcome, and it reinforces why IVAs should only be considered with proper advice.
FAQ
What happens to my credit score when an IVA finishes?
The IVA stays on your credit file for six years from the date it started, not from the date it ended. So if you complete a five-year IVA, it drops off your file one year after completion. Once removed, you are starting your credit history largely from scratch, but you can begin rebuilding immediately with a credit builder card and by ensuring all payments are made on time.
Can my creditors take further action if I have an IVA?
Not while the IVA is active. Once approved, all creditors included in the IVA are legally bound by its terms and cannot take enforcement action, add interest, or contact you directly. If a creditor not included in the IVA continues to pursue you, speak to your insolvency practitioner immediately.
Will an IVA affect my partner?
An IVA is a personal arrangement. Your partner's credit file is not directly affected unless you hold joint debts. Any joint debt will appear on both credit files. Your partner's income is taken into account when calculating your budget, but they are not personally liable for your IVA payments.
Can I keep my bank account during an IVA?
You can usually keep a basic bank account. However, if your bank is also one of your creditors, it may close your account or offset money from savings against the debt. Open a basic account with a bank that is not a creditor before starting your IVA. Nationwide's FlexBasic and Starling Bank both offer accounts accessible to people with poor credit histories.
Is an IVA worse than bankruptcy?
It depends on your circumstances. Bankruptcy typically lasts one year (though restrictions can apply for up to three years), while an IVA lasts five or six years. Bankruptcy has more severe professional restrictions. An IVA gives you more control and protects your home more reliably, but commits you to a longer period of restricted finances. A free debt adviser can help you compare both options for your specific situation.