How does an IVA work?

If you are struggling with serious debt – usually £15,000 or higher – an IVA (Individual Voluntary Arrangement) could be your best route to becoming debt-free.

IVAs are widely considered a preferable alternative to bankruptcy, as they avoid many of the drawbacks that bankruptcy can entail (e.g. losing assets).

However, as with any major financial decision, it’s well worth ensuring you know exactly what is involved.

#1: Speak to a debt adviser
Before you can apply for an IVA, you will have to speak to a debt adviser about your circumstances. It may well be that another debt solution would be better for your current situation.

If your debt adviser thinks an IVA is the best route to take, they will work with you to draw up a proposal telling your creditors how much they are likely to receive if your IVA goes ahead.

#2: Your creditors will be invited to approve the IVA
Once your IVA proposal has been submitted, your creditors have the opportunity to ‘vote’ for or against your IVA going ahead.

For the IVA to go ahead, 75% - by debt value - of voting creditors must be in favour of the proposal.

#3: Your IVA begins
Once your IVA begins, you will pay a fixed monthly amount to your insolvency practitioner, who will pay regular dividends to your creditors in line with your proposal. This will usually continue for five years.

Both you and your creditors are legally bound by the arrangement, and your creditors may no longer pursue any kind of legal action, unless the terms of the IVA are broken. Interest on your debts is usually frozen, but this depends on the agreed terms of your proposal.

#4: Equity release in month 54
If you are a homeowner, you may be required to release some of the equity in your home (to be divided amongst your creditors) in your 54th month (half way through your fifth, final year).

#5: 60 months – IVA is complete
Once you have made your final payment in your 60th month, your IVA will be complete. Any remaining debt you technically owe will be considered settled and you are legally debt-free. However, the IVA will remain recorded on your credit history for a further year.

Our initial advice on your best financial solution is free. Fees payable when continuing service is provided. Calls may be recorded for training and quality purposes.