Expert debt views & facts

An IVA (Individual Voluntary Arrangement) is a legally-binding agreement that helps you write off unsecured debts that you cannot afford to repay. It involves paying back a fixed amount each month, usually for 5 years, based on the maximum affordable amount, after your costs of living have been taken into account.

If you enter into an IVA, your creditors will not receive everything that you owe them, which in some cases can put them off. But many creditors will accept that an IVA is their best chance of receiving at least some of what they are owed. But they will have to be convinced that they will get more from an IVA than if they petitioned for your bankruptcy.

Usually, you will only be eligible for an IVA if a) you have unsecured debts of over £15,000, and b) your income allows you to afford IVA payments.

How an IVA works
1) Firstly, you will speak to an Insolvency Practitioner (IP) about your debts. If the IP thinks an IVA is your best option, they will begin drawing up a proposal on your behalf, telling your creditors how much they would receive if the IVA goes ahead.

2) Your IP arranges a meeting of the creditors where the proposal is considered. The meeting involves all your creditors getting together and voting on whether to approve your IVA proposal. For the IVA to go ahead, those who vote in favour of the proposal must collectively own more than 75% of your total debts.

3) The IVA begins and you will pay a fixed amount each month, which will be divided between your creditors. This will usually take place over 5 years. In most cases, your creditors are legally required to stop charging interest and no longer pursue any kind of legal action.

4) If you are a homeowner, you will probably have to free up some of the equity in your home in the 4th year of your IVA, and this will also be divided between your creditors.

5) If you successfully keep up payments for 5 years, the IVA is complete and you are legally debt-free. However, it may take up to a year afterwards for the IVA to disappear from your credit history.