What is an IVA?

An Individual Voluntary Arrangement - or IVA for short - is a way of paying back your creditors while solving your debt problems. It is often considered to resolve financial issues without going down the path of bankruptcy and other legal action.

IVAs were introduced by the Government to create a legally-binding agreement between you and your creditors to pay back a reduced amount of the debt each month. Although it does have a wide number of benefits, some people can be put off by the rigid structure of it.

Residents of England, Wales and Northern Ireland with debts around £10,000 are eligible to apply for an IVA providing they have a regular income. However, as a result of the legal implications involved in a formal arrangement such as this, only a registered Insolvency Practitioner (or IP) can set up an IVA for you.

To set up an IVA, the IP will discuss with you any essential living expenses, such as a mortgage or utility bills. Expenses such as smoking or lottery tickets are not regarded as essential and will not be accepted by creditors.

Once these have been taken into account, a proposed repayment plan will be put forward to your creditors. In order for it to succeed, it must be approved by those representing 75% of your debt. Even if the remaining 25% refuse, it will still go ahead.

When it is in place, you will then be expected to meet your monthly repayments for the duration of the arrangement. Missing any payments during the life of the IVA can result in you being taken to court and declared bankrupt. Although there is provision for mitigating circumstances, changing the amount you pay is not straightforward and is not recommended.

The key to an IVA comes at the end of the agreement, when any remaining debt will be written off, regardless of the amount paid back. However, this only applies to debts included in the IVA itself. IVAs cannot include secure debts, such as mortgages, Government loans or fines

IVAs last up to five years although it can affect your credit rating for six years.

Not sure what an Individual Voluntary Arrangement is? Find out what is an iva?.