If you’re struggling with problem debt and worried about how you’ll ever pay it back, an Individual Voluntary Arrangement (IVA) might be the solution you need. It’s a formal agreement that helps thousands of people in the UK get back on their feet each year, allowing them to repay what they can afford whilst writing off the rest.
How does an Individual Voluntary Arrangement (IVA) work?
An IVA is a legally binding agreement between you and your creditors that helps you to repay your debts at a rate you can actually afford. Instead of juggling multiple payments to different creditors each month, you make one manageable monthly payment to a licensed Insolvency Practitioner (IP), who then distributes the money to your creditors on your behalf.
The arrangement typically lasts five or six years. Once you’ve completed your agreed-upon payments, any remaining debt is written off**, even if you haven’t repaid the entire amount you originally owed. This gives you a clear route out of debt with a definite end date.
One of the biggest advantages of an IVA is the legal protection it provides. Once your IVA is approved, your creditors have to stop chasing you for payment. All contact from debt collectors and bailiffs must end, and interest and charges on your debts are frozen. This breathing space can be a huge relief if you’ve been under constant pressure from creditors.
To set up an IVA, you’ll need to work with a licensed Insolvency Practitioner who will assess your situation, prepare your proposal, and manage the arrangement throughout the whole process. The IP acts as an intermediary between you and your creditors, handling all the negotiations and admin.
The IVA Application Process: A Step-by-Step Guide
1. Find Out if You’re Eligible to Apply for an IVA
The first step is to find out whether you actually qualify for an IVA. Not everyone will be eligible, and it’s not always the best solution for every debt situation.
Generally, you’ll need to meet the following criteria:
- You must owe at least £7,000 in unsecured debts to two or more creditors
- You need to have a regular income that allows you to make monthly payments towards your debts
- You must be a resident of England, Wales, or Northern Ireland (Scotland has a different system called a Protected Trust Deed).
The best way to determine if you’re eligible is to speak to a regulated debt advisor or an Insolvency Practitioner. At NDH Financial, we offer a no-obligation consultation where we’ll review your financial situation in detail. During this conversation, we’ll look at your income, expenses, assets, and debts to work out whether an IVA is suitable for you.
If an IVA isn’t the right option, we’ll explain why and signpost other debt solutions that might be more appropriate for your circumstances.
2. Insolvency Practitioner Will Complete Your IVA Proposal
Once you’ve decided to go ahead with an IVA, the next step is to put together your formal proposal. This is where your Insolvency Practitioner does most of the heavy lifting, but you’ll need to provide some information and documentation to help them prepare it.
Your IP will need details about your financial situation, including:
- Recent payslips
- Bank statements
- Proof of identity and address
- A complete list of your debts and creditors
- Information about any assets you own
Most IVA providers will use an open banking system, with your permission, to obtain the information; however, they can also accept scanned copies or photos sent by email, which makes the process much quicker.
The proposal itself is a detailed document that explains your financial circumstances, outlines why you can’t repay your debts in full, and sets out what you’re offering to pay instead. Your IP will calculate an affordable monthly payment based on your income and essential living expenses, making sure you have enough left over to cover your basic needs.
Let’s use an actual IVA example. Let’s say this is your current financial situation:
| Credit Cards | £13,500 |
| Store Cards | £4,500 |
| Personal Loan | £5,000 |
| Overdraft | £3,000 |
| Utility Bills | £1,500 |
| Total Debt | £27,500 |
This would make your previous monthly debt repayments: £717
But with an IVA, your monthly payments would change to: £137
This is a monthly saving of £580, with approximately 70%* of your debt written off
You’ll have the chance to review the proposal before it’s sent to your creditors, so you can check that everything is accurate and that you’re comfortable with the terms. This is your opportunity to ask questions or raise any concerns before moving forward.
3. Creditor Approval
Once you’re happy with your proposal, your IP will send it to all your creditors for approval. This is where your creditors get to have their say on whether they’ll accept the arrangement.
Your creditors are given a minimum of 14 days to review the proposal and vote on whether to accept it. They’ll look at your financial circumstances and decide whether the offer is fair and reasonable. The good news is that you don’t need every single creditor to agree. As long as 75% of the creditors who vote on your proposals vote in favour, your IVA will be approved.
In most cases, creditors will accept a reasonable proposal. They recognise that an IVA gives them a better chance of recovering at least some of what you owe, rather than risking getting nothing at all if your situation gets worse. Your IP will have prepared the proposal with this in mind, making sure the offer is realistic and likely to be accepted.
Sometimes, creditors might ask for additional information or request minor changes to the proposal. If this happens, your IP will handle all the negotiations on your behalf. They’ll work to address any concerns whilst making sure the arrangement remains affordable for you.
Once 75% of creditors vote in favour, your IVA is approved and becomes legally binding. All your creditors, even those who voted against it or did not vote, must abide by the terms.
4. Your IVA Begins
Once your IVA is approved, it becomes a legally binding agreement, and you can start to move forward with dealing with your debts and getting your finances back on track.
From this point onwards, your creditors can’t chase you for payment, and interest and charges on your debts are frozen. This means the amount you owe won’t continue to grow, and you’ll finally have some breathing room from the constant pressure.
You’ll begin making your agreed monthly payment to your IP, who will then distribute the money to your creditors according to the terms of the IVA. These payments are typically made by continuous card payment authority, so they’re automatically taken from your account each month without you having to remember to make individual payments.
Your Insolvency Practitioner will also send you an annual statement showing how much you’ve paid and how your IVA is progressing. They’ll be your main point of contact throughout the arrangement, so if your circumstances change or you have any questions, they’re the person to speak to.
What to Expect During Your IVA
An IVA will last for five or six years, during which time you’ll need to stick to the terms of the agreement. Whilst this might sound like a long commitment, it’s a clear path out of debt with a definite end date.
Your main responsibility is to make your monthly payment on time, every month. These debt management payments are based on what you can afford, so they should be manageable alongside your essential living expenses. As long as you keep up with your payments and inform your IP of any significant changes in your circumstances, you’ll be on track to complete your IVA successfully.
During your IVA, you’ll need to review your finances with your IP each year. This is to make sure your payment amount is still appropriate based on your current income and expenses.
If your income has increased, you may need to pay more. If it’s decreased, your payment might be reduced. The aim is always to keep your IVA affordable whilst making sure you’re paying what you reasonably can.
There are some restrictions you’ll need to be aware of whilst your IVA is active. You won’t be able to take on any new credit over £500 without your IP’s permission, and if you receive a windfall of more than £500, you will need to pay this into your IVA. Your IP will explain all these terms clearly at the outset, so there are no surprises.
If you stick to the agreement and make all your IVA payments, once your IVA is complete, any remaining debt is written off**. You’ll receive a completion certificate, and you’ll be free from those debts for good.
How to Get an IVA FAQs
What if my IVA isn’t accepted?
If your creditors don’t approve your IVA proposal, it can feel disheartening, but it’s not the end of the road. There are several options available to you.
Your IP may be able to revise the proposal and submit it again with modifications that address your creditors’ concerns. Sometimes, creditors reject a proposal because they want you to pay slightly more, or they need additional information about your circumstances. Your IP will negotiate on your behalf to find a solution that works for you.
If your IVA can’t be approved even after revisions, you’ll need to consider alternative debt solutions. Depending on your situation, other options include a Debt Management Plan, a Debt Relief Order, or bankruptcy. You will need to talk to a regulated debt advisor, who will talk you through the alternatives and help you work out the best way forward.
The important thing to remember is that applying for an IVA doesn’t make your situation worse. Even if it’s not accepted, you’ve taken positive steps to address your debts, and there will be other solutions available.
How much does it cost to set up an IVA?
The good news is that you don’t need to pay any upfront IVA fees. All the costs involved are taken from your monthly payments, so you won’t need to find any money before your IVA begins.
Your Insolvency Practitioner’s fees are built into your IVA and are regulated, which means they can’t charge you whatever they like. These fees cover the cost of setting up your IVA, managing it throughout its duration, dealing with your creditors, and handling all the administration.
Typically, your IP will take the majority of their fees at the start of the arrangement, and payments to your creditors will increase towards the end of the IVA.. This means you’re not paying anything extra on top of what you can afford, and your creditors have agreed to this arrangement as part of approving your IVA.
Can I apply for an IVA if I have a mortgage?
You can apply for an IVA if you have a mortgage. Having a mortgage doesn’t disqualify you from entering into an IVA, and many people with mortgages successfully use IVAs to deal with their unsecured debts.
Your mortgage is a secured debt, which means it’s not included in your IVA. You’ll need to continue making your mortgage payments as normal throughout the arrangement. When your IP calculates how much you can afford to pay into your IVA each month, they’ll factor in your mortgage payment as an essential expense.
However, there is one thing to be aware of. If you own a property, this may impact the length of your IVA. If your share of the equity, based on 85% of the value of your property, is less than £10,000, then your IVA will be for 5 years (60 months). If your share of the equity is more than £10,000, the IVA will be for 6 years (72 months).
For example, if you own a house worth £100,000, and have a mortgage of £80,000, then your IVA will be for 5 years.
Value of the property for the IVA: £100,000 * 85% = £85,000
Equity: £85,000 – £80,000 = £5,000
As the equity is less than £10,000, the IVA will run for 5 years.
However, if you own a house worth £100,000 and have a mortgage of £50,000, then your IVA will be for 6 years.
Value of the property for the IVA: £100,000 * 85% = £85,000
Equity: £85,000 – £50,000 = £35,000
As the equity is more than £10,000, the IVA will run for 6 years.
Do I have to be employed to qualify for an IVA?
You don’t have to be employed to qualify for an IVA. What matters is that you have a regular income that allows you to make monthly payments towards your debts.
This income can come from different sources, including employment, self-employment, or pension income. As long as you have enough disposable income after covering your essential living expenses to make affordable monthly payments, you may be eligible for an IVA.
If you’re currently unemployed or your only income is from benefits, an IVA might not be the most suitable option for you. In these circumstances, other debt solutions like a Debt Relief Order might be more appropriate. A regulated debt advisor can assess your situation and recommend the best solution based on your individual circumstances.
How long does it take to set up an IVA?
Setting up an IVA typically takes between three and six weeks from your initial consultation to approval. The exact timeline depends on how quickly you provide the necessary documentation and how long your creditors take to review your proposal.
