IVA

The Individual Voluntary Arrangement (IVA) was introduced by the government in 1986 as an alternative to bankruptcy. It is a legally binding five-year agreement between you and the people you owe money to. A lot of information has been written about IVAs and it's important to recognise that they are not suitable for everyone. Like other UK debt advice charities we will only suggest the option of an IVA if it is right for your circumstances. We will also tell you up front what happens when an IVA fails so you know exactly what taking on an IVA means. We describe our approach to IVAs as “straight talking”. 

Whilst an IVA will reduce the amount you pay back to your creditors, it is unlikely to be as much as 90%, which is a figure you may sometimes see quoted. What actually happens is that an IVA advisor helps you and your creditors to reach an agreement about how much money you can reasonably afford to pay back each month, after your living costs have been taken into account. How much debt is written off depends on your circumstances.

An IVA can, however, be a very effective solution for some people. In reality, an IVA will write off between 50% and 60% of an average debt of just under £60,000. Such a typical IVA would mean a reduction in the money owed to between £25,000 and £30,000.

Once you have agreed and started an IVA, you need to keep making the payments you have agreed for the full five year term. You won’t have to sell your home as part of the agreement (although you might be asked to release any available equity at the end of the IVA - if you can afford to) and all creditors must stop chasing you any further. 

However, if you don’t stick to the monthly payments that you have agreed to then the IVA could be unsuccessful. If there’s a good reason why you’ve been unable to continue making your payments (if your circumstances change, for example if you lose your job) then your Insolvency Practitioner (IP) can go back to your creditors and try to renegotiate your monthly payments (this is called a ‘variation’). Whilst over 90% of IVA variations are approved by creditors, there is a chance that your creditors will not accept the new terms. If this happens or if you consistently miss payments without contacting your IP then your IVA will fail. For this reason we only suggest an IVA as an option if it is suited to your financial circumstances.

Whilst your creditors will agree to pay your Insolvency Practitioner a fee for managing the IVA, it’s important to keep in mind that they may also be entitled to add the fees they have paid on to the amount you owe them if you don't complete your IVA.

It’s also important to bear in mind that if you benefit from a significant windfall during your IVA (such as winning the lottery or seeing the equity in your house rise sharply) and are able to pay off your debts in full as a result, then the IVA fees paid by the creditors will be added to your original debt. In these circumstances, it’s important to keep in mind that you won’t have paid any additional interest on your debts for a period of five years so the chances are you will still be better off.

These rules apply to all charities and commercial organisations alike. IVAs are a lifeline for many people with serious debts, but they're not suitable for everyone. That's why it's so important to get free and impartial advice.

If you need advice on IVAs, there's no need to wait or book an appointment, our Advisors are available Monday to Friday 8am to 8pm and Saturday 9am to 5pm on 0800 043 40 50.