What is an IVA?

If you're struggling with debt or finding it difficult to pay back your loans and credit cards, an Individual Voluntary Agreement - otherwise known as an IVA – could help repay what you owe through manageable payments.

What is an IVA?

An IVA is a legally binding debt solution formalising an agreement between you and your lenders. Once approved, you’ll make affordable payments each month towards your creditors – typically over five to six years.

Interest and charges are frozen during this time and, once the IVA ends, any remaining funds you owe are written off.

As a bonus, due to the formal nature of this agreement, an IVA means you shouldn’t have any direct contact with your lenders. This means no demands for repayment and no threats of legal action or bailiff visits.

It could be for these reasons that an IVA is the most popular form of insolvency within the UK. During 2019, there were almost 78,000 IVAs agreed – nearly a 10% increase on 2018.

How does an IVA work?

Due to it being legally binding, an IVA must be set up by a qualified professional known as an insolvency practitioner. This individual will work closely alongside you to evaluate your circumstances and to determine if this arrangement would be beneficial.

That person will create an initial proposal. Usually this covers such aspects as who you owe money to, how much you can afford to repay, and the IVA’s length. This proposal is then taken to your creditors for approval.

Although not all your lenders need to agree to the IVA, the creditors who hold at least 75% of your total debt must do so.

Therefore, if the creditors who hold 20% of your total debt don’t agree, the agreement will still be approved.

Once this happens, all the parties involved in the proposal are informed and a supervisor will be appointed to your case. This individual is there to make sure you keep making the monthly payments.

Generally speaking, this whole approval process takes about six weeks to complete.

Do I qualify for an IVA?

The qualifying criteria for an IVA can differ but, generally speaking, you should fulfil certain conditions:

  • You have regular, sustainable, income – this is important as you’ll need to make monthly repayments.
  • You have debts totalling at least £6,000.
  • You are in debt to multiple creditors.
  • Your creditors will receive more money through an IVA than they would through bankruptcy.
  • You live in England, Wales, or Northern Ireland.

Although this list is not exhaustive – and some insolvency practitioners may request other terms, this should give you a good idea as to whether you’d be eligible.

How much debt can I write off?

Once your IVA ends, any remaining debt you owe will be written off. However, because everyone’s circumstances are different, it’s impossible to say how much debt we’ll be able to write off.

As an example though, if you owe more than £15,000 in total – and can afford repayments equivalent to at least £200 per month – you should write off around £3,000 worth of debt (20%) once the IVA ends.

What happens if my IVA is rejected?

Occasionally, creditors will reject an IVA at the proposal stage. This might happen because they don't agree to the size of the monthly repayments, or the overall amount of money that they'll receive by the end of the agreement.

It’s rare they’ll reject the agreement outright though. Typically, lenders will negotiate in the form of ‘modifications’. For example, they may request the IVA lasts longer than usual. If you agree to these, your IVA should be back on the path to approval.

If you feel these modifications are unreasonable, you will still owe money and should take some time to decide your next steps. For example, you can investigate other ways of paying your debts until they're cleared. Alternatively, you can also choose to submit a new IVA proposal, if you can find a way to offer more money and make the agreement more appealing.

Fundamentally, your creditors want to reclaim as much of their money as they can. If an IVA is the best way for them to do this, they shouldn’t feel the need to pursue alternatives – such as bankruptcy.

Can an IVA stop bailiffs?

The IVA application process can take around six weeks before this agreement is approved. Once this happens, court actions such as bailiff intervention should stop. While waiting for the IVA to be set up, bailiffs can still visit. In this situation, you should ask the agent to put your account on hold and notify them about the IVA in progress.

There are certain debts which also cannot be included in the agreement. If a bailiff is charged with collecting these, such as court fines, an IVA cannot be used to stop them.

How long does an IVA last?

An IVA typically lasts for around five years. However, the length of this agreement differs on a case by case basis. Usually, these are agreed on 60 or 72-month terms but if you receive a windfall or come into money, you may be able to settle your agreement early.

Can I settle my IVA early?

You can make an early IVA settlement offer if you have funds available and your creditors agree to accept this. This may not be for the full amount of money which they would get back if your IVA ran to completion, but could still be accepted to settle the IVA early. Creditors are more likely to accept the offer if it's a generous one.

You may be able to resettle early if you've received money through inheritance, released equity through the sale of property, or even won a significant sum of money.

How much does an IVA cost?

Regardless of who organises your IVA – whether us or another company – there will be costs involved.

Choose MoneyFixers though and you’ll be charged nothing for any initial advice we provide. You won’t pay anything to find out whether we think you’d be eligible for an IVA so you really have nothing to lose by getting in touch with us.

We believe in transparency though so we’ve detailed our fees here.

Is an IVA worth it?

An IVA almost sounds too good to be true. Similar to any financial solution, it has its positives and negatives. Whether or not an IVA is worth it though depends on your circumstances. We’ve included the pros and cons below so you can weigh these up:

Six advantages of an IVA

There are several advantages to an IVA, namely:

  • During your IVA, your creditors are not allowed to contact you. If you've been receiving letters, phone calls, or other forms of communication from your lenders, then these should stop once your IVA is active.
  • Once your IVA is approved, interest and charges will be frozen.
  • Instead of making multiple payments to your lenders, you’ll only have to make one affordable amount each month.
  • Once you have completed your IVA, all remaining debt is written off. You'll receive a Certificate of Completion and can no longer be chased for any money that you once owed to creditors.
  • As an alternative to bankruptcy, an IVA is better for homeowners. Whilst bankruptcy often requires debtors to sell their homes, with an IVA you might only be asked to remortgage it. If you can't remortgage, you may be required to extend your IVA by a year.
  • Similarly, if you have a vehicle, an IVA should allow you to keep it.

Five disadvantages of an IVA

The main disadvantages associated with an IVA include:

  • An IVA will not necessarily cover all your debts. For example, it doesn't help to clear hire purchase agreements, mortgages, student loans, TV licence arrears, child support arrears, or court fines.
  • If you come into a large sum of money during the IVA, such as receiving an inheritance, this may need to be paid into the agreement.
  • An IVA may affect your job. It is a form of insolvency which might cause problems if you have a senior role, or work as a company director.
  • An IVA will be recorded on your credit file. It will usually remain there for the full length of your agreement, and often slightly beyond.
  • If you enter into an Individual Voluntary Agreement, your name will be published on a public database called the Insolvency Register.

Is an IVA right for me?

Ultimately, an IVA may be right for you if:

  • You want to write off debt.
  • You don’t want to deal directly with your creditors.
  • You’re able to make monthly repayments towards your lenders.
  • You’re happy with this debt solution lasting around five to six years.

However, if your employment could be affected by insolvency an IVA might not be right for you. For example, some industries such as accountancy, law, or financial services may not employ those on an IVA. Therefore, it’s always best to check your employment contract beforehand to make sure this debt solution won’t affect your income.

Can I get an IVA while on benefits?

To qualify for an IVA, you should prove you have a reliable, sustainable source of income. However, as anyone who has been on benefits knows, every penny of support is typically needed. Although benefits could count as reasonable income, you may be left in a poor financial situation if these go towards making monthly repayments.

Furthermore, given how creditors approve an IVA, they may be reluctant to back the solution if the payments are based on benefits.

What debts can be included in an IVA?

There are multiple debts which you can resolve as part of an IVA. These include:

If you’re trying to resolve a debt which isn’t listed here, get in touch. We should be able to tell you whether it can be included on an IVA.

What debts can’t I cover in an IVA?

Although you can use an IVA to deal with many types of debt, there are exceptions. These include:

  • Secured loans
  • Student loans
  • Court fines
  • Court-ordered maintenance arrears
  • Child support debt
  • TV licence arrears

If you’re struggling with these debt types, you’ll have to deal with them separately while making payments on your IVA. Fortunately, your insolvency practitioner should be able to provide you with advice on the matter while helping you budget appropriately.

Can I get a mortgage with an IVA?

Although it’s possible to get a mortgage after an IVA, it’s unlikely you’ll be able to secure one during this agreement. Traditionally, if you want a loan which is worth more than £500, you’ll need to seek approval from your insolvency practitioner first.

After an IVA is another matter. Although some mortgage lenders won’t work with people who’ve been declared insolvent in the past, there should still be many providers willing to eventually work with you.

Can I get credit with an IVA?

The aim of an IVA is to reduce the amount of debt you owe. Therefore, taking out additional lines of credit is discouraged. Despite this, there are loans and other financial products available to IVA holders - although these usually have high interest rates.

Furthermore, as your insolvency practitioner must approve loans worth more than £500, you probably won’t be able to borrow much while on an IVA.

Can I keep my bank account with an IVA?

If your bank account is linked to any of your debts, you may need to switch in order to protect your income. For example, if you have a credit card and current account with the same provider, you should consider moving accounts to a bank which isn’t involved in the IVA.

You should speak with your insolvency practitioner and they’ll be able to best advise if your bank account ought to be switched.

Can I cancel an IVA?

Although you can cancel your IVA, this is a drastic step which may lead to bankruptcy. As a result, this move should be treated with caution. If you have trouble paying your IVA, you should initially speak with your insolvency practitioner. They may be able to amend your payment plan.

As an IVA is a legal agreement, it can only be cancelled with agreement from creditors. Therefore, you’ll usually need a good reason as to why the IVA isn’t working out. Possible explanations could include:

  • Your financial situation has improved and you can now pay more money towards your creditors.
  • A job loss or changing health conditions mean you can no longer afford to make the repayments.

Once an IVA has been cancelled, it will be listed as ‘failed’.

What happens if an IVA fails?

Fortunately, IVA failure isn’t something which happens overnight. If you have breached the terms of the agreement (for example, by missing a payment), the IVA won’t fail there and then. Instead, you’ll usually be given the opportunity to rectify the situation.

You’ll first be issued a ‘breach notice’. This document demonstrates how the IVA has been broken and what can be done to rectify the matter. Usually, a solution is preferable to the IVA failing so there’s some flexibility in getting the agreement back on track.

For example, if you cannot afford your current repayments, you may be able to negotiate reduced amounts over a longer period.

Therefore, to help prevent an IVA from failing, any change of circumstances or causes for concern should be reported to your insolvency practitioner as soon as possible.

If the breach cannot be rectified, the IVA will fail. This means your creditors could take action to reclaim what’s owed or petition to make you bankrupt.

What will happen if a creditor makes me bankrupt?

If a creditor makes you bankrupt, a court officer – called an official receiver – will take control of your property and finances. Legally, you must cooperate with this individual. Ultimately, your assets may be sold off to help reclaim as much money as possible for your creditors.

What happens in the last year of my IVA?

Most IVAs last about five years. With 12 months left to go on the agreement, you should have made several affordable payments to your creditors and you may have an indication of how much debt you’ll be writing off.

What happens in the last year of an IVA depends on whether you are a homeowner. In this situation, your property may be valued. If there is more than £5,000 worth of equity in the home, you might have to remortgage it.

Although this extends your mortgage payment period, this is often viewed as a fair price to pay so you can resolve your debts. Crucially, it’s worth noting your home will not be sold.

If you’re not a homeowner, or there is insufficient equity, you may have to extend your IVA by another year.

How to apply for an IVA

Choosing an IVA is a big decision but one which could leave you in a much better financial situation – not to mention write off considerable amounts of what you owe. If you think an IVA is right for you, complete the form below and start taking control of your debts today.