Individual Voluntary Arrangements (IVAs)

IVAs are an alternative to bankruptcy that may enable you to keep your home and protect your assets. They are also a form of insolvency and must be administered by a qualified Insolvency Practitioner, who will charge you a fee.
What is an IVA?
Individual Voluntary Arrangements (IVAs) are an alternative to bankruptcy. They can be described as a legally binding debt management plan (DMP), where you agree to pay an certain amount off your debts over a set period. The remainder of the debts included in the IVA are written off when the arrangement is completed.

An IVA can be a monthly installment plan over a fixed term (usually five years), or a short term arrangement if you have a lump sum to put forward. Some IVAs are a mixture of both installments and a lump sum. Depending on your circumstances, you and your partner may be able to enter into an IVA together.

An IVA has to be set up and managed by an Insolvency Practitioner (IP) who will charge you a fee. Typical fees can be £4,000 or more and are taken from your monthly payments. Some practitioners will require you to pay an up front fee before putting together an IVA proposal.
At least 75% of your creditors have to agree to the IVA, if they refuse, you could lose the fee you have paid.
You may be required to take out life insurance and other forms of insurance.

As with all forms of insolvency, you should consider all the alternatives before deciding on an IVA. These include:

  • A debt management plan (DMP) where you pay a certain amount every month and this is proportionally distributed between all your creditors.
  • Informal repayment agreements or token payments.
  • Challenging debts using the Consumer Credit Act. If most of your debts are credit cards, loans and catalogue accounts you took a long time ago, it is worth exploring this option.
  • Lump sum offers to settle your debts for a reduced amount.
  • Help from friends and family, if you are going through a bad patch.
  • A mixture of the above.

Criteria for an IVA:

  • Have a at least £200 available every month to pay towards your debts or a lump sum or assets that could be included, or a combination of both.
  • Be able to repay at least 20p for every £1 of debt included.
  • Debts totaling £15,000 or more.
  • Two or more separate creditors.
Unlike other forms of insolvency, an IVA requires you to have enough income and/or assets to repay a substantial part of the debt.
Unlike bankruptcy and DROs where you are normally discharged after 12 months and your debts are written off, you need to keep up repayments on an IVA for five years.
If an IVA fails, you can be made bankrupt. If the Insolvency Practitioner decides not to make you bankrupt, your creditors can take action against you.
Advantages and disadvantages
  • Advantages
    • Avoiding the stigma often attached to bankruptcy.
    • Part of your debt could be written off as you will stop repaying at an agreed date, even if the debts haven’t been paid off in full.
    • You may be able to carry on running a business or keep a job that would be affected by bankruptcy, however, some forms of employment can also be affected if you enter into an IVA.
    • You may be able to keep your home and other assets.
    • IVAs are flexible and can be drawn up to meet your circumstances.
    • You should usually be able to keep your bank account. Check the terms with your bank.
    • Less restrictions than if you were bankrupt.
  • Disadvantages
    • An IVA is only a viable option if you have two or more unsecured creditors and unsecured debts of at least £10,000.
    • Your creditors have the option to reject the IVA proposal. If you paid an up front fee, you may lose this money.
    • You will need to keep up the agreed repayments for the full term (usually five years), otherwise you could face bankruptcy.
    • If the IVA fails, the debt will be repayable in full along with any interest and charges.
    • If you are a homeowner, you may have to agree to remortgage your home. If you can’t do this, you may lose your home.
    • An IVA is still a form of insolvency and some will regard it the same as bankruptcy for the purpose of credit, employment and lettings. IVAs are a matter of public record.
    • You will be under close supervision for the duration of the IVA and will have to report any change in circumstances.
    • You will pay a considerable amount of money in IP fees, and some IPs will require them to be paid up front.
What debts can be included?
  • The following debts can be included
    • rent or mortgage arrears, however, your landlord or lender is unlikely to agree;
    • utility bills (gas, electricity, water);
    • phone bills;
    • council tax, business rates and community charge arrears;
    • income tax, VAT and National Insurance arrears;
    • credit cards and store cards;
    • overdrafts and loans (loans from banks, payday lenders and doorstep lenders);
    • catalogue accounts;
    • benefit overpayments (excluding loans from the social fund);
    • family and personal debts;
    • hire purchase and conditional sale agreements if you are in arrears;
    • parking penalty charges;
    • mortgage shortfalls (money you owe if your house was sold for less than the outstanding mortgage);
    • small business debts such as money owed to employees and suppliers and debts to clients who have paid for goods and services you were unable to supply.
  • The following debts cannot be included
    • magistrates’ court fines;
    • child support and maintenance payments;
    • student loans;
    • social fund loans (budgeting and crisis loans);
    • mortgage, secured loan or rent arrears unless your lender or landlord agrees (which is unlikely).
With debts that cannot be included, you will have to make arrangements to repay them in full.
Unlike other forms of insolvency, your creditors can object to your IVA proposal. At least 75% of your creditors have to agree. The percentage is based on amounts owed.
If you do not give complete information to your IP about your assets and debts, you could be committing a criminal offence.
The process
An IVA has to be set up by an Insolvency Practitioner. An Insolvency Practitioner is usually an accountant or solicitor authorised to set up IVAs. You can search for an Insolvency Practitioner on the Insolvency Service website.
Once an IP has agreed to make an IVA proposal for you, they can apply to the court for an interim order to stop your creditors from taking action against you.
  • The IP sends the IVA proposal to your creditors and arranges a formal meeting.
  • Creditors have have to vote on whether to accept the IVA proposal. They can send their vote to the IP without attending the meeting.
  • The proposal has to be accepted by more than 75% of the creditors. This is calculated based on amounts owed rather than number of creditors. If the creditors to whom you owe the highest amount vote against the proposal, the IVA may not go through.
  • Creditors may argue the terms of the IVA, such as the amount paid each month or the assets that can be included.
  • Check with the IP to make sure that all your creditors have been contacted. If a creditor comes to light after the IVA is agreed and they had no notice of the meeting, they can claim the amount they would have received if they had been included in the IVA from the start.
  • If the IVA is agreed, your IP will supervise the arrangements and make sure you make the payments.
If the IVA does not go through, you will have to negotiate with all your creditors separately. You also may have lost money in fees and costs for the IVA application.
A number of companies promote IVAs as ‘government schemes’. They are profit making businesses who will often charge you an up front fee.
If you are a homeowner

Home and moneyThe IP will normally include an equity clause within your IVA proposal, which means that during the IVA (normally in year four) you would be expected to apply for a secured loan or remortgage to pay back some of the debt. If you are able to remortgage or get a secured loan, the repayments should be affordable. You should also be left with equity of at least 15% of the value of your share of the property. For example, if you are the sole owner of your property and it is worth £100,000, you should be left with at least £15,000 equity after remortgaging.

If you cannot remortgage or get a loan, you may be required to sell your home, however, you can keep paying installments under the IVA for an extra 12 months rather than selling your home. Alternatively, a third party such as a family member or friend could pay a lump sum to the IP. This lump sum would need to be 85% of the value of your share of the property (after the value of your share of any existing mortgages and secured loans has been taken away).

If you are unable to maintain the payments on your IVA there is a risk that you may be made bankrupt, which could result in you losing your home.
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