Understanding Individual Voluntary Arrangements and how they could help manage your debt situation

Key takeaways

• An IVA is a legally binding agreement used in England, Wales and Northern Ireland that may let you repay unsecured debts over 5-6 years with remaining debt potentially written off

• Once approved, creditors generally cannot take further action against you, providing breathing space to rebuild your finances

• You'll work with a licensed insolvency practitioner who manages the process and distributes payments to creditors

• An IVA will affect your credit rating but many people are able to stay in their home and keep essential assets

• Free debt advice is available to help you understand if an IVA is suitable for your situation

• ClearScore can help you monitor your credit score and report over time so you can track your credit health

What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement used in England, Wales and Northern Ireland between you and your unsecured creditors to deal with debts you cannot afford to repay in full, usually through monthly payments over several years. It's designed as an alternative to bankruptcy, allowing you to make affordable monthly payments towards what you owe while getting legal protection from creditor action. If you complete your IVA as agreed, any remaining unsecured debt covered by the arrangement is usually written off.

The IVA process is set out in Part VIII of the Insolvency Act 1986 and related rules. Your insolvency practitioner (IP) puts a proposal to your creditors, and once the required majority agree, the arrangement is approved and becomes binding on all included creditors. This makes it a serious commitment, but also provides strong legal protection once in place.

How IVAs work: The process explained

Who can apply for an IVA?

You may be eligible for an IVA if you are insolvent, in other words, you cannot pay your debts as they fall due or you would not be able to repay them in full in a reasonable time. There's no official minimum debt level in law, but many insolvency practitioners will only consider an IVA where you have at least several thousand pounds of unsecured debt (often around £6,000-£10,000 or more) because of the fees and work involved.

You'll need to demonstrate that:

• You have a regular income to make monthly payments

• Your financial circumstances mean you cannot pay debts in full

• You have multiple creditors

• The proposal must usually show that your creditors are likely to receive a better return through an IVA than they would if you went bankrupt

Preparing your IVA proposal

Working with a licensed insolvency practitioner is mandatory for an IVA. They'll help you gather your financial information, including:

• Details of all your debts and creditors

• Your income and essential expenses

• Information about your assets

• Your employment status

Your insolvency practitioner will then prepare a proposal outlining how much you can afford to pay each month and for how long. This proposal must demonstrate that creditors are likely to receive a better return through an IVA than they would if you went bankrupt.

Getting creditor approval

Your creditors vote on whether to accept your IVA proposal. For approval, creditors who hold at least 75% of the total debt value of those voting must agree to the IVA. If any of those voting are 'associated' creditors, more than 50% of the value of non-associated creditors who vote must also approve.

If approved, all creditors are legally bound by the agreement, even those who voted against it or didn't vote at all.

Managing your IVA

Once approved, you'll make regular monthly payments to your insolvency practitioner, who distributes the funds to creditors as agreed in the arrangement. The insolvency practitioner supervises your IVA throughout its term. Most IVAs last around 5 years, but they may be extended by up to 12 months, particularly where you are a homeowner and cannot release equity.

Benefits and drawbacks of an IVA

Advantages of choosing an IVA

Once your IVA is approved, creditors whose debts are included in the arrangement generally cannot start or continue court or enforcement action against you as long as you keep to the agreed terms. Interest and charges on those included debts are usually frozen from the start of the IVA.

Unlike bankruptcy, many people in an IVA are able to stay in their home and keep essential assets, but what happens to your property depends on your equity, your overall situation and the terms agreed with your creditors.

If you complete your IVA as agreed, any remaining unsecured debt covered by the arrangement is usually written off. Your IVA will stay on your credit report for six years from the start date, even if the arrangement itself lasts longer or finishes early.

Monthly payments are proposed based on an assessment of what you may be able to afford after essential expenses, subject to creditor approval and ongoing review.

Potential risks and disadvantages

An IVA will appear on your credit file for six years from the start date, affecting your ability to obtain credit during and after the arrangement. With ClearScore, you can track your credit score for free and monitor your progress as you work towards financial recovery.

You must keep up with agreed payments. If you miss payments and cannot agree changes with your insolvency practitioner, your IVA can fail. Creditors may then be able to pursue you again for the full balances and, in some cases, may petition for your bankruptcy.

During your IVA you must not obtain credit of more than £500 without telling the lender that you are in an IVA, and in practice most lenders will find it harder to approve you for new credit.

Insolvency practitioner fees are taken from the payments you make into the IVA rather than being charged on top, which means less of each payment goes to your creditors. The level and structure of fees vary between firms, so it is important to understand them before you commit.

IVA vs other debt solutions

IVA compared to bankruptcy

IVA compared to debt management plans

A Debt Management Plan (DMP) is an informal arrangement with creditors, offering more flexibility but less legal protection than an IVA. With a Debt Management Plan (DMP):

• The arrangement is informal, so creditors can still choose to take court action

• Some creditors may agree to freeze or reduce interest and charges, but they do not have to

• You normally repay your debts in full unless creditors agree to accept less

• There is no automatic write-off of remaining balances at the end of the plan

How to start considering an IVA

Seeking professional advice

Before you commit to an IVA, you should consider seeking free, impartial debt advice from a recognised organisation such as Citizens Advice, StepChange Debt Charity, National Debtline or MoneyHelper (run by the Money and Pensions Service). They can help you compare all the options and check whether an IVA is really right for you.

Choosing an insolvency practitioner

If you decide to proceed with an IVA, you'll need to work with a licensed insolvency practitioner. When choosing one:

• Check they're authorised by a recognised professional body

• Understand their fee structure

• Ask about their experience and success rates

• Ensure they explain the process clearly

• Get multiple opinions if possible

Preparing your financial information

Gather comprehensive information about your finances, including:

• Bank statements from the last three months

• Details of all debts and monthly payments

• Proof of income (payslips, benefits letters)

• List of essential monthly expenses

• Information about assets and their values

Frequently asked questions about IVAs

How long does an IVA typically last?

Most IVAs run for five or six years, though this can vary depending on your circumstances. Some arrangements may be shorter if you can pay more, while others might be extended if you experience financial difficulties.

Can I keep my home during an IVA?

Many people are able to keep their home in an IVA, but if you have equity you will usually be asked to try to release some of it near the end of the arrangement. If you cannot remortgage, your IVA may be extended instead of you losing your home.

What happens if I miss a payment?

If you miss payments and cannot agree changes with your insolvency practitioner, your IVA can fail. Creditors may then be able to pursue you again for the full balances and, in some cases, may petition for your bankruptcy. Your insolvency practitioner will usually work with you to find a solution, which might involve modifying the arrangement.

How does an IVA affect my credit rating?

An IVA will remain on your credit file for six years from the start date. This will make obtaining credit more difficult during this period. However, once the IVA is completed and removed from your credit file, you can begin rebuilding your credit score. ClearScore gives you free access to your credit score and report, helping you track progress and spot opportunities to improve your financial wellbeing.

Can I pay off my IVA early?

In some cases you may be able to settle an IVA early if you can offer a lump sum, for example from a third party. Creditors will vote on whether to accept this offer, and it does not have to equal the full original debt.

What debts cannot be included in an IVA?

Certain debts cannot be included, such as:

• Student loans

• Court fines

• Child maintenance arrears

• Most secured debts, such as your mortgage or a hire-purchase agreement, are not written off in an IVA and you usually need to keep paying them separately to avoid losing the asset. Your insolvency practitioner will explain how any secured debts are treated.

How does ClearScore help with IVAs?

ClearScore does not provide debt advice or arrange IVAs. You can, however, use your ClearScore account to view your credit score and report for free, which may help you and any debt adviser you speak to understand your current position and track changes over time.

Will my employer know about my IVA?

Your IVA will appear on the public Individual Insolvency Register for a limited time, but most employers do not routinely search this. However, some roles, especially in financial services or where you handle client money, may require you to tell your employer or may have their own rules about insolvency.

Taking the next steps

If you're struggling with debt, an IVA might offer a structured path to financial recovery. However, it's a significant commitment that may affect your finances for several years. The key is getting proper advice to understand all your options.

Remember that dealing with debt problems early is usually better than waiting until your situation becomes more difficult. Free debt advice is available, and taking that first step to understand your options could be the beginning of getting your finances back on track.

Track your credit score to better understand your current financial position and monitor your progress over time. Your credit score tells the story of your financial reliability - and with ClearScore, you can track it for free, for life. Get tips and tools to improve your score, boost your financial confidence, and take control of your next big step - from buying your first home to securing a better loan.

Disclaimer: This guide provides general information about IVAs in England, Wales and Northern Ireland and is not personal financial advice. Debt solutions affect people in different ways, so you should get independent, regulated advice before deciding what to do. Laws, guidance and lender policies can change, so always check the latest information from official and free-advice sources.