Individual voluntary arrangements
This fact sheet covers England & Wales. You will need different advice if you live in Scotland.
This fact sheet tells you how an individual voluntary arrangement (IVA) can be used to deal with your debts.
Use this fact sheet to:
- find out what an IVA is;
- find out if you may be eligible to apply for an IVA to help you deal with your debts;
- see when we can help you to apply for an IVA;
- understand how an IVA is set up; and
- find out the main advantages and disadvantages of an IVA.
What is an IVA?
An IVA is a legally-binding arrangement to pay an agreed amount off your debts over a set period. Any unpaid parts of the debts that were included in the IVA are written off when the arrangement is completed. An IVA can be set up in a number of different ways. It can either be a monthly instalment plan over a fixed term (normally five years), or a short term arrangement if you have a lump sum to put forward. Some IVAs are a mixture of both instalments and a lump sum.
An IVA can be a very effective way to deal with your debts. However, there are both advantages and disadvantages to IVAs. These are discussed later in this fact sheet. Think about these carefully and contact us for advice before deciding whether to go ahead with an IVA.
If you need time to get debt advice and find a debt solution, you may want to consider applying for breathing space.
Breathing space will stop most types of enforcement and also stop most creditors applying interest and charges for 60 days.
To find out more, see our Breathing space fact sheet.
The National Debtline IVA panel
National Debtline can refer you to an insolvency practitioner (IP) from our special panel. After reading this fact sheet, if you think that an IVA is the best solution for you, see the later section Finding an insolvency practitioner.
Do I have to use an IP recommended by National Debtline?
You do not have to use one of the IPs that we work with. If you prefer, we can give you advice on how to find one yourself.
Is an IVA for me?
An IVA may be a suitable solution for you if you have:
- money available every month to pay towards your debts;
- a lump sum or assets that could be included; or
- a combination of spare money each month and assets or a lump sum.
Complete a personal budget to see how much spare income you have to pay into an IVA. You can use our online budget or contact us if you are not able to access the budget online.
We may be able to help you set up an IVA, using an insolvency practitioner from our panel. See the later section Finding an insolvency practitioner.
Benefit only income
If your only income is state benefits, think very carefully about the solutions available to deal with your debts. An IVA may not be a suitable solution. Contact us for advice.
Assets are valuable things that you could sell to help pay your debts. In most cases, if your assets are worth more than the total amount of your debts, an IVA is not a suitable solution. However, if the value in your home (after any mortgage and secured loans have been taken off) is greater than the total amount of your debts, an IVA may still be possible. Contact us for advice.
Debt you can include
You can include most types of debt in your IVA proposal, but bear in mind that your creditors may object. See the next section The IVA procedure.
You can include priority debts such as council tax arrears, tax debts, energy debts and so on. However, you cannot include:
- maintenance, or arrears of maintenance, ordered by a court;
- Child Maintenance Service or Child Support Agency arrears;
- magistrates’ court fines;
- mortgage, secured loan or rent arrears unless your lender or landlord agrees (which is unlikely); and
- student loans (for IVAs made on or after 6 April 2010).
If you are unsure what debts you can include in your IVA, contact us for advice.
Hire purchase agreements
Be careful if you have a hire purchase agreement you want to include in your IVA. Check your agreement carefully to see if there is a clause which allows the creditor to end the agreement if you enter into an IVA and contact us for advice.
The IVA procedure
An IVA has to be set up by an IP. An IP is usually an accountant or solicitor who is authorised to set up IVAs.
Once an IP has agreed to make an IVA proposal for you, they can apply to the County Court for an ‘interim order’. This stops your creditors from starting bankruptcy proceedings against you. It also stops any other enforcement action without the court’s permission whilst the interim order is in force.
You can put forward an IVA proposal without applying for an interim order first. This may reduce your costs, but means your creditors can still take enforcement action against you until the IVA is agreed.
- The IP sends the IVA proposal to your creditors and arranges a formal meeting called a ‘creditors meeting’.
- 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.
- At the meeting creditors have to vote on whether to accept the IVA. Often creditors send their vote to the IP and don’t actually take part in the meeting.
- The proposal has to be accepted by at least 75% ‘by value’ of the voting creditors for it to become legally binding on all your creditors. ‘By value’ means voting creditors who hold at least 75% of your total debt, not the number of creditors you have.
- This means that if the creditors that are owed the highest amount vote against the proposal, the IVA may not go through.
- Sometimes creditors will ‘haggle’ about the terms of the IVA and ask you to agree to pay more every month, or include assets you do not want to lose. They may ask you to make payments over a longer period. However, your agreement is needed before these changes are made.
- If the IVA is agreed, your IP will supervise the arrangements and will check that you are making the payments.
Personal and workplace pensions
If you have a personal or workplace pension that you can claim during the proposed term of your IVA, your creditors may agree to exclude it as an asset. If they don’t agree to this, the pension fund could be at risk. Check the terms and conditions of your IVA agreement and contact us for advice.
If your IVA proposal is rejected
If the IVA does not go through, then you are back to the same position as you were in before you made the application.
You will have to negotiate with all your creditors separately. You also may have lost money in fees and costs for the IVA application. Think carefully before you decide what to do next. It may not be a good idea to apply for a new IVA unless your circumstances have changed and you can improve on the proposal you made before. Contact us for advice.
Repeat interim orders
Bear in mind that if you have applied for an interim order, you have to wait 12 months before you can apply for another interim order. However, you don’t usually need one to apply for an IVA.
Give complete information
If you do not give complete information to your IP about your assets and debts when you apply for an IVA, you could be committing a criminal offence.
The IVA protocol
The IVA protocol is a set of voluntary guidelines which many insolvency practitioners (IPs) follow. The guidelines cover how a straightforward consumer IVA should be put together and how the IP should behave. The protocol has been set up to make the IVA process quicker and simpler for IPs, creditors and for you as the applicant.
The IVA protocol covers the following areas.
- What the IP should do to check your income and outgoings.
- Your creditors should normally accept your figures if they fall within set limits.
- How any equity in your home should be dealt with (see the next section What about my home?).
- Your IP should make sure you have had debt advice on the solutions available to you to deal with your debts.
- What to do when your income and outgoings go up or down, and what should happen if you miss any payments.
Not all IPs use the IVA protocol and, because each IVA can be very different, not all IVAs can follow the protocol. Make sure you ask about the IVA protocol before you agree an IVA proposal with your IP. If your IP says that your case is not straightforward and you cannot have an IVA that follows the protocol, make sure you understand why. If you are not sure about this, contact us for advice.
What about my home?
It is very important to understand how an IVA will affect your home before you sign any agreement.
If you are a home owner, your IP will normally want to include a special section within your IVA proposal called an ‘equity clause’.
This means that during the IVA (normally in year five) you would be expected to apply for a secured loan or re-mortgage to pay back some of the debt. If you cannot do this, your IP may want you to sell your home instead.
However, if your IVA follows the IVA protocol, there is some protection. See the section IVA protocol and your home.
IVA protocol and your home
If you propose an IVA that follows the IVA protocol and you are a homeowner, you will be asked to provide one or more valuations for your home before the IVA proposal is put to your creditors. You can get a free valuation online, or you may have local estate agents that can provide you with a free valuation.
The IP will agree on a valuation with you and will then work out your share of the equity. This will be based on 85% of the value of the property, taking away the value of any existing mortgages and secured loans. The following example shows how the IP will calculate your equity.
- Your home is jointly owned with your partner and you have an equal share in the property.
- The home is valued at £150,000 and there is a mortgage in joint names with a balance of £98,000.
- £127,500 (85% of the value of the home) take away £98,000 (the balance of the mortgage) equals a total equity of £29,500.
- As the home is in joint names, your share of the equity will be half of the total that is worked out. So, your equity would equal £14,750.
The value of your share of the equity will be used to decide how the equity will be treated in the IVA. There are three options under the new protocol.
Option 1. Your share of the equity is £5,000 or less.
The IVA proposal will be for instalments over a five-year period and you will not be asked to release equity in your home.
Option 2. Your share of the equity is over £5,000 but the IP considers it unlikely that you will be able to remortgage or get a secured loan.
The IVA proposal will be for instalments over a six-year period and you will not be asked to release equity in your home. The IP will assume you will not be able to release equity if:
- you will be over the age of 60 when the IVA starts; or
- the spare income for the household after covering essential bills is £100 a month or less.
Option 3. Your share of the equity is over £5,000 and the IP considers it likely that you will be able to remortgage or get a secured loan.
The IVA proposal will be for instalments over a six-year period with a review of the valuation of your home after 54 months.
- If your share of the equity is at least £5,000 when it is reviewed, you will be expected to apply for a secured loan or re-mortgage to pay back some of your debts. If you are able to re-mortgage or get a secured loan, you should be left with at least 15% of your share of the value of the property and the new mortgage should finish by the end of your existing mortgage or your state retirement pension age (whichever is later). If you do release equity, the term of the IVA will be reduced from six years to five years.
- If your share of the equity is below £5,000 when it is reviewed or you are not able to get a re-mortgage or secured loan, you will have to keep paying instalments under the IVA until the end of the six-year IVA term. Alternatively, the IVA could end after five years if a third party such as a family member or friend pays a lump sum to the IP that is equal to 12 months’ worth of payments under the IVA.
If your equity is greater than your debt
If the value in your home (after any mortgage and secured loans have been taken off) is greater than the total amount of your debts, an IVA is not always a suitable solution. Contact us for advice.
You need to be careful when looking at taking out a new mortgage or secured loan. It may be difficult to find a loan from a reputable lender at a good rate of interest because your credit rating may not be good enough. You must discuss this with your IP and get advice to make sure you can afford the new payments, or you could be putting your home at risk. Contact us for advice.
Risk of bankruptcy
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.
Finding an insolvency practitioner (IP)
Before deciding to go forward with an IVA, consider all of the solutions available to you for dealing with your debts. See the later section Alternative solutions. If you do decide that an IVA is the right solution to pay back the money you have borrowed, you will need help from an IP. National Debtline could refer you to an IP on our special panel, or you could contact an IP directly yourself.
The National Debtline IVA panel
Our panel of IPs have agreed the following.
- Any IVA that National Debtline refers will follow the IVA protocol.
- You will not be charged up-front fees and you will not be asked to make any payments until the IVA proposal has been agreed by your creditors.
- You will be able to take further independent advice from National Debtline whenever you want to.
- Your IP should keep you fully informed about your IVA and should make sure you fully understand what the IVA will mean for you.
How do I qualify?
If you want to be considered for an IVA under our IP panel scheme, you usually need:
- to have at least £80 spare income each month to pay towards your debts;
- to have at least two different debts; and
- to be able to repay at least 5p in every £1 to your creditors over the term of the IVA.
Even if you meet these criteria, it does not mean that you will automatically get an IVA. The criteria are only a guide. Contact us for advice about whether an IVA is a suitable option for you.
If you and your partner meet these criteria by taking into account both of your circumstances, you may be able to do an IVA together. This is known as an ‘interlocking IVA’. Contact us for advice.
What do I do next?
If you are interested in setting up an IVA through National Debtline, contact us for advice. We will be able to discuss an IVA with you, as well as advising you on what other solutions you may have for dealing with your debts.
What if I want to contact an IP myself?
The Insolvency Service provides a searchable directory of IPs. Go to www.gov.uk and search for 'find an insolvency practitioner'. The directory gives the contact details of each IP and those of their authorising body. If you are unable to access this website, contact us for advice.
Companies who charge up-front fees
Be wary of companies who suggest they can put you in touch with an IP if you pay them a fee. You can contact an IP directly without going through another company.
Before you agree to use the services of any IP, check their terms and conditions carefully including what fees may be charged. See the next section IVA charges. Check to see whether they follow the IVA protocol and make sure you shop around different IPs to compare their services and fees.
Always check what fees an IP will charge before signing any agreement or starting the process to set up an IVA. You will need to check what the fees cover and whether the IP will charge any up-front fees.
All IPs will charge fees for setting up and supervising an IVA. Fees vary between different firms, but typical fees can be £4,000 or more. These fees are usually taken from the monthly payment you have agreed you can afford to make to your creditors.
Many IPs will offer a free initial meeting to look at whether an IVA is suitable in your situation. Some IPs will demand an up-front fee before putting forward the IVA proposal. This could mean that if the proposal is refused by your creditors, you will lose the money you have paid to the IP up until that point. Other IPs may still charge you some fees if you start the process but then decide not to go ahead in the end.
You may be asked to pay some form of payment protection insurance to cover you against death, unemployment and so on. Your IP should tell you about any insurance cover they have arranged and how much this will cost you. It will usually be built into the initial fees you have to pay to your IP.
If you use an IP from National Debtline’s special panel, we will receive part of the fee they will charge you. This is for the work we have carried out collecting information about your circumstances. We will use any payments we receive to support our ongoing charity work of giving help and advice to people with debt problems.
Change in circumstances
If your circumstances change, you must tell your IP. If you are unable to keep up with your payments, your IP can ask the creditors to accept lower payments and agree a ‘modified’ IVA. The IP may charge you a fee for doing this.
If you cannot make any payments or your creditors refuse to accept lower payments, your IVA may fail. If this happens, the IP may allow you to consider other options. There may be additional fees to pay to the IP if your IVA fails. They can take court action to get these back from you.
If your IVA follows the IVA protocol and your circumstances change, your IP may allow you to make reduced payments or take a payment holiday. Contact us for advice.
The IP is able to petition for your bankruptcy, but this will not happen in all cases. If your IP decides not to make you bankrupt, then your creditors can take action against you instead. It is very important to agree payment arrangements with each of your creditors separately to stop this happening.
Advantages of an IVA
- Repayments stop at an agreed date and you will usually pay less than the full amount you owe.
- You may be running a small business which would be difficult to keep going if you were bankrupt.
- You may be in a profession where you could lose your job if you go bankrupt such as accountancy, the police or armed forces. But be careful, in some professions your employment may be affected by an IVA. Check with your professional body and check your contract of employment.
- You may have access to a large lump sum and want a formal arrangement with your creditors to accept the lump sum and write off the rest of the debts.
- You will not automatically lose your home or other assets. See the earlier section What about my home?.
Check the terms and conditions of your bank account to make sure that it cannot be affected by an IVA in any way.
Disadvantages of an IVA
- If you do not keep to the terms of the IVA then the IP or your creditors can take further action against you, for example by making you bankrupt.
- If creditors do not accept the IVA proposal, you are back to square one and your creditors can carry on trying to pursue you for your debts.
- If you paid an up-front fee for your IVA and it is not accepted, then you will have lost the fee and may be in a worse position than when you started.
- If you own your home, the IP and creditors may ask you to agree to re-mortgage your home as part of the IVA. If you are unable to do this, you may lose your home. See the earlier section What about my home?.
- If you rent your home, check the terms and conditions of your tenancy agreement. It may say that your landlord can end your tenancy if you enter into an IVA. Even if your tenancy agreement does say this, your landlord may choose not to end your tenancy, especially if you are up to date with your rent payments.
- There is a risk that the IVA is agreed on the basis of monthly payments that you cannot afford over a long time. You must be very careful that the payments are set at a realistic amount in the first place.
- If your circumstances change and you can no longer afford the payments, your IVA may end if the IP cannot persuade the creditors to accept a new agreement.
- The IVA will be recorded on your credit reference file for six years and can affect your ability to get further credit. See the later section Where are IVA details kept? for more information.
- When you set up an IVA, you will need to open a basic bank account which is separate from all your debts. A basic account does not offer any credit facilities, such as an overdraft. Some banks may not allow you to continue to operate a basic bank account whilst you are in an IVA. Contact us for advice.
Future statements from creditors
Under the rules of the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format. This will happen even when you are in an IVA but should stop once your IVA is completed. Don’t worry. This does not mean that there is a problem with your IVA. If you receive other letters demanding payment, you should take this up with your IP or contact us for advice.
Where are IVA details kept?
Records of IVAs are kept on a public register called the Individual Insolvency Register. You can search this for free. Go to www.gov.uk and search for 'Individual Insolvency Register'. Alternatively, you can search the register by visiting your local official receiver’s office. You can find out the location of your nearest official receiver’s office by checking your local phone book or by contacting the Insolvency Service (see the later section Useful contacts). Your IVA will remain on the register until it is completed or terminated.
Credit reference agency files
Records of IVAs are normally held on credit reference agency files for six years from the date the IVA began. This can significantly affect your ability to get further credit. If the IVA lasts longer than six years, it will remain on your credit file until the date the IVA ends. The IVA is marked ‘complete’ by the credit reference agency when they are informed of this by the Insolvency Service. Make sure you send a copy of the letter from your IP to the three credit reference agencies so that your credit file is updated.
You may continue to find it difficult to get credit even after the IVA has been removed from your credit file. This is because some lenders may ask if you have ever had an IVA or been bankrupt in the past. This will depend on the lender’s policy.
See our Credit reference agencies fact sheet for more information.
Put your complaint in writing to the insolvency practitioner (IP). Set out the facts as clearly as you can. There are additional guidelines that an IP should follow when dealing with your IVA. Contact us for advice about these.
Say why you are not happy and what you want them to do about it. Include any evidence that you feel supports your complaint. If you are not happy with the IP’s response, you can usually send your complaint to the Insolvency Service. The Insolvency Service will then pass your complaint on to the IP’s authorising body.
The IP’s authorising body cannot change the terms and conditions of your IVA or any decision your IP has made. However, they can use the information you provide in your complaint to help them decide whether they should take further action against the IP. Also, a complaint will not stop any bankruptcy action being taken against you if your IVA has failed. For more information about making a complaint, see the Insolvency Service's website. Go to www.gov.uk and search for 'Complain about an insolvency practitioner'. Alternatively, contact us for advice.
There may be alternative solutions for you to deal with your debts. For example, you may wish to consider a debt management plan. This is an informal arrangement which involves paying your surplus income to a debt management company. The debt management company then negotiates reduced repayments with your creditors.
Bankruptcy could also be suitable for you. Bankruptcy is an official order which ends liability for most debts. However, it can involve some of your assets being sold to raise money to pay to your creditors.
A debt relief order (DRO) is an alternative to bankruptcy which can see liability for debts written off after 12 months. You may be eligible for a DRO if you have debt of £30,000 or less and spare income of £75 a month or less after essential living costs.
There are advantages and disadvantages to each solution. It is important to consider these carefully before you make a decision about which option is best for you.
See our Ways to clear your debt fact sheet for more information.
The Insolvency Service www.gov.uk/government/organisations/insolvency-service