What is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and the people you owe money to. IVAs were originally intended as a mechanism for dealing with ‘business generated’ personal insolvency, although they have more recently become a popular method for dealing with personal debt.

In return for paying back what you can realistically afford each month (after living costs and essential expenditure has been accounted for), usually for a period of five years (you may be required to make payments for an additional twelve months if you have more than £10,000 of equity in your home), your creditors will agree to freeze interest and write off any outstanding debts. An IVA will also prevent your creditors from taking any further action against you (including petitioning for your bankruptcy) and will allow you to keep your home.

If you’ve been researching ‘what is an IVA?’ then the chances are that you’ve already encountered some bold claims about what IVAs can actually achieve. Some organisations claim that IVAs can write off up to 90% of your debt. Whilst this can happen in rare cases, in reality, an IVA will write off less than that amount.  How much debt is written off depends on your circumstances.

Before entering into an IVA, you need to be aware that fees are involved.  Your creditors will agree to your Insolvency Practitioner (the person that manages the IVA process on your behalf) receiving a fee out of the money that you pay into the IVA each month. Essentially, your creditors are agreeing to accept less money back in order to pay your IP. The only exceptions to this are if you have a significant windfall during the IVA and are able to pay back your debts in full or if your IVA fails. In these circumstances, your creditors may require you to contribute an amount to cover fees on top of your debts.

IVAs are a lifeline for many tens of thousands of people in the UK each year. However, entering an IVA has significant professional and legal implications, which must be fully understood before any decision is made.

Debt Advice Foundation is a registered UK charity offering free, confidential support and advice on any aspect of debt. You can read more about IVAs and whether they are suitable for your situation in our IVA section. If you need advice on any aspect of IVAs, please call 0800 043 40 50.