Individual Voluntary Arrangements (IVAs): a guide

If you’re struggling with debt then don’t lose hope – you’re not alone and there are a number of options to explore to help you improve your financial position. One of these is called an Individual Voluntary Arrangement (IVA).

woman managing debt

An IVA involves working with all your creditors to create a plan to pay them back which is more manageable for you. Here, we go through the key details of an IVA, and why it might be the right option for you.

What is an IVA?

An IVA is a court-approved plan to pay back creditors the money you owe them over a specific period of time. You can make monthly or lump sum payments to clear your debts, and an IVA will usually last for five or six years.

Who can have an IVA?

Since the IVA is used over a long period of time, you should have a regular long-term income to qualify for an IVA, or be able to pay a lump sum off your debts. 

To make it cost effective, you should also have more than around £10,000 of debt because, on average, the IVA will cost between £4,000 and £5,000 which you’ll pay alongside the repayments each month to your creditors. If your debts are smaller than this, then there are other options available which could be better for you.

What costs are involved?

You’ll pay three types of costs: 

  1. A nominee fee
  2. A supervisor fee 
  3. Disbursements 

The nominee fee will be the first five payments of your IVA or £2,000 – this depends on your creditors . The supervisor fee is 15% of all other funds realised, while disbursements cover things like insurance payments to cover money you have already paid through the IVA. 

These fees are non-refundable, even if you complete your repayments within the term of your IVA .

Can you pay all debts off through an IVA?

No, you can’t. The ones you can include are:

  • Overdrafts
  • Personal loans
  • Catalogue debts
  • Council tax arrears
  • Hire purchase shortfalls following voluntary surrender or repossession
  • Mortgage shortfalls following surrender or repossession
  • Credit and store cards
  • Money you owe to HM Revenue & Customs, like income tax or National Insurance contributions

Source: Money Advice Service

However, you can’t include student loans, magistrate’s court fines, child maintenance or arrears in child support, and some types of car finance.

What are the benefits of having an IVA?

There are a number of benefits to agreeing an IVA with creditors if you’re struggling, the biggest one being that your debts will be frozen. Also, you’ll no longer be chased for repayments providing you stick to the plan, which may give you some peace and reduce your stress levels in relation to your debt. Plus you’ll know how much you have to repay each month on your debts to clear them.

You’ll also be sure that you can afford your repayments because the IVA sets in stone an amount you’re comfortable paying each month. A proportion of your debt will also be written off, reducing the amount you have to repay, and any interest payments or charges that would otherwise stack up are frozen, meaning you’re simply paying off the capital each month. This makes your debt burden far more manageable.

If you have a business, you may also be able to continue running it if you have an IVA.

Are there any disadvantages?

Yes. It will negatively affect your credit rating which will make it harder to get further credit (although you can’t take more than £500 of additional credit once an IVA is in place). It may also be very hard to get a mortgage while you’re in an IVA. 

Your creditors may list a default on your credit report as you haven’t paid the original debt as planned, and the IVA itself will also remain on your credit file. Both will be there for six years and it’ll be tougher for you to get credit as a result.

Even if you pay off your IVA early, you’ll still have the IVA on your file for six years from the point at which your IVA was agreed.

An IVA is a form of insolvency – an insolvency practitioner will put it in place and run it for you – so it could also affect your job. You should check this with your human resources department or professional body, if you’re a member of one, before you apply.

Also, if you receive any additional income or other assets while you are paying the IVA, then you’ll need to declare these and you may need to add at least some of this into your IVA contributions.

Even so, if you’re struggling with debt, you may want to consider an IVA as a way to get your finances back on an even keel.

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I’m a highly experienced, multi-award winning finance journalist and broadcaster, having worked on The Daily Telegraph’s personal finance desk and in the City office for more than six years from 2000 to late 2006, becoming the deputy personal finance editor in 2004. I was the financial journalist behind the hit Channel 4 personal finance show Superscrimpers and my agency – Moneta Media – is a specialist communications agency, delivering content, SEO and PR for financial services and professional services businesses.