Get out of debt with an IVA

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If you are struggling with a high level of unsecured debt that you can’t afford to repay within a reasonable amount of time, but that you can commit to making regular reduced repayments towards, an IVA (Individual Voluntary Arrangement) may be the right debt solution for you.

What is an IVA, and how does one work?

An IVA is a formal, legally binding agreement between you and your unsecured creditors, which will – in most cases – last for a total of 5 years.

To be eligible for an IVA, you must be able to commit to making regular reduced payments for the duration of the agreement. If you can commit to this – and your IVA is approved by enough of your lenders – they will agree to write off the portion of your debt that you can’t afford to repay once the IVA has come to a successful conclusion.

Before an IVA begins, you and your Insolvency Practitioner (IP) would draw up an IVA Proposal, which would show your creditors what you could realistically afford to pay in an IVA.

For the agreement to go ahead, the IVA Proposal would have to be accepted by voting creditors accounting for 75% or more of your debt. If it is, the IVA will become legally binding on all your unsecured creditors, including any who didn’t vote or who voted against it.

As with any debt solution, an IVA has its advantages and disadvantages. Here’s a look at some of these, to help you decide whether an IVA might be a suitable debt solution for you.

Advantages

  • When your IVA starts, all interest on your debts will be frozen.
  • When it concludes (assuming you’ve made all the payments you were required to) any outstanding unsecured debt will be written off, leaving you debt free. Note that this applies to unsecured debt – there are some debts, such as mortgage debt, which IVAs cannot write off.
  • An IVA is very unlikely to force the sale of your home. In fact, whether you’re a homeowner or a tenant, it should make it easier to pay your mortgage/rent, as your IVA payments would be calculated to leave you with enough money every month for all your essential expenses.

Disadvantages

If you are a homeowner, you may be required to release some of the equity in your home half way through the final year of the agreement.

  • Entering an IVA will affect your credit rating for six years (in most cases, this means the five years that the IVA is in progress, and one year afterwards).
  • If you choose to enter an IVA, you will end up repaying more of your debt than you would have done if you had chosen to declare yourself bankrupt.