This guide tells you what an individual voluntary arrangement (IVA) is and how it can be used to deal with your debts.

Use this guide to:

• find out how an IVA works;
• check if you may be eligible to apply for an IVA to help you deal with your debts;
• learn how to apply for an IVA and when we can help you to apply;
• 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 agreement with your creditors to pay some or all of your debts over a set period. If you stick to the agreed terms, your liability for any remaining balance of debts included in the IVA will be written off when the IVA completes.

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; or
• a lump sum or assets that could be included; or
• a combination of spare money each month and assets or a lump sum.

An IVA can be a very effective way to deal with your debts. However, there are both advantages and disadvantages to an IVA. These are discussed later in this guide. Think about these carefully and contact us for advice before deciding whether to go ahead with an IVA.

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 (IP).

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

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.

How does an IVA work?

An IVA requires a proposal being made to your creditors. The proposal will usually involve you offering to pay part of your total debt in exchange for your creditors agreeing to write off your liability for the remaining balance of the debts included in the IVA.

Your proposal can be structured in a way that suits you. For example, your proposal could be to:

• make affordable monthly payments over a fixed term (usually five or six years);
• have a short-term arrangement based on you paying a lump-sum or selling assets; or
• make payments through a mixture of affordable instalments and lump sum payments or sale of assets.

Your creditors will be invited to vote on whether to accept your IVA proposal. If enough creditors are in favour, the IVA will go ahead. If the IVA does go ahead, it will also include debts where creditors chose not to vote or they voted against the IVA.

While an IVA is in place, creditors cannot take action to recover debts included in the IVA and they cannot add interest or charges.

You need the help of an insolvency practitioner (IP) to set up an IVA, including to put your proposal to your creditors. Your payments under the IVA will also be made to an IP, who will distribute payments amongst your creditors.

What debts can an IVA help with?

You can include most types of debts in your IVA proposal, but bear in mind that your creditors may object. See the next section How to apply for an IVA.

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.

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 and you want to apply for an 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.

How to apply for an IVA

• Complete a personal budget to see how much spare income you have available to pay into an IVA. Use My Money Steps to work out your budget. If you wish to make a proposal that includes a lump sum payment or the sale of assets, you will need to consider when money will be available to be paid into the IVA and how much this will be.
• Contact National Debtline to review whether an IVA may be an appropriate solution for you. An adviser will be able to discuss an IVA with you, and they will also be able to give you advice on what other solutions you may have for dealing with your debts.
• If you do decide to apply for an IVA, you will need to find an IP. National Debtline may be able to refer you to an IP from our special panel, but we can also give you advice on how to find your own IP if you would prefer this. For more information, see the section Finding an insolvency practitioner (IP).
• If an IP agrees to draft an IVA proposal for you, they will work with you to develop the proposal that will be put to your creditors.
• The IP can apply to the County Court for an ‘interim order’ to prevent your creditors from starting bankruptcy proceedings or taking other enforcement action without the court’s permission while the interim order is in force. You do not have to apply for an interim order and not applying may reduce your costs, but your creditors will be able to take enforcement action against you until your 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. An IVA becomes binding on creditors if your proposal is accepted by at least 75% ‘by value’ of the voting creditors. This means that the sum owed to the creditors that accept the proposal needs to be at least 75% of the amount owed in total to all the creditors that voted. Creditors that are owed a higher proportion of your debt may be able to prevent an IVA going through by voting against it.
• 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, the IVA starts and your IP will supervise the arrangements and check that you are making the payments.

Bank accounts

Check the terms and conditions of your bank account to make sure that it cannot be affected by an IVA in any way. If you use an account with a bank or building society that you owe money to, you will need to open a basic account which is separate from all your debts. A basic account does not offer any credit facilities, such as an overdraft. See our Safe bank accounts guide for more information.

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 proposal 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 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 long your IVA will last. IVAs usually have a five-year term, but your IVA may have a six-year term if you are a homeowner. See IVA Protocol and your home in the next section What if I own 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.

For the latest version of the IVA Protocol, go to www.gov.uk and search for ‘IVA Protocol’.

What if I own my home?

Before you sign an IVA agreement, it is very important to understand how an IVA will affect your home.

If you are a homeowner, your IP may want you to use some of the equity in your home to pay into your IVA. For example, the agreement may include an ‘equity clause’ which would require you to remortgage or apply for a secured loan to pay back some of your debt. In rare cases, your IP may want to sell your home if you cannot remortgage or obtain a secured loan. You should check the agreement carefully and speak to your IP to make sure you fully understand how the equity in your home may be affected and whether there is any risk to your home.

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.

If an IVA proposal based on the IVA Protocol is put to your creditors, you will not need to use any equity in your home to pay for your IVA. However, your IP will consider whether the term of your proposed IVA should be for a longer period. If your share of the equity is calculated to be less than £10,000, an IVA will be proposed for a five-year term. If your share of the equity is calculated to be £10,000 or more, your IP may propose an IVA based on a six-year term.

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, it may affect the IVA proposal that an IP is prepared to make. For example:

• they may not make an IVA proposal if there is very high equity that could be used to pay your debts; or
• they may only be prepared to propose an IVA which requires you to use some of the equity in your home to pay into your IVA.

You should make sure you fully understand how your home or the equity in it could be affected in an IVA. If your home is worth more than your debt and you are considering an IVA, an IVA might not be a suitable solution. Contact us for advice.

Re-mortgaging

If you will be using equity in your home to pay into your IVA, you will 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 should 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.

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;
• have at least two different debts; and
• 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.

IVA charges

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 for 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 may allow you to take a payment break or they may be able to agree reduced payments. The IP may charge you a fee if they need to ask your creditors to agree to a variation of the IVA terms.

If you cannot make any payments or your creditors refuse to accept lower payments, your IVA may fail. 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.

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.

IVA pros and cons

IVA advantages

• Creditor action stops. An IVA stops creditors from taking enforcement action or adding interest and charges for debts included in the IVA.
• Binding on dissenting creditors. If an IVA proposal is accepted at a creditors meeting, then creditors that voted against the proposal are bound by the terms of the IVA too. See the earlier section How does an IVA work?.
• Debt partially written off. Repayments stop at an agreed date and you will usually pay less than the full amount you owe.
• Keeping assets. You will not automatically lose your home or other assets. See the earlier section What if I own my home?.
• Lower professional risk. You may be in a profession where you could lose your job if you go bankrupt, but where your job would not be affected by an IVA. But be careful, in some professions your employment may still be affected by an IVA. Check with your professional body and check your contract of employment.
• Flexibility. There is no fixed structure that an IVA proposal must follow. This means you may make a proposal that suits you. See the earlier section How does an IVA work?.

IVA disadvantages

• Creditors may reject an IVA proposal. An IVA can only go ahead if there is a decision from creditors to accept the proposal. There is no guarantee that creditors will agree to an IVA. See If your IVA proposal is rejected in the earlier section How to apply for an IVA.
• Not all debts are included. Some debts cannot be included in an IVA. If you have debts that do not get included, you will need to have a separate arrangement in place with your creditors for those debts. See the earlier section What debts can an IVA help with?.
• Your IVA proposal needs to be sustainable. IVAs are normally proposed for a term of five or six years. You should make sure your repayment offer is realistic, and you should consider whether your circumstances may change during an IVA. If your circumstances change and you can no longer afford the IVA payments, the IVA may fail.
• IVA failure can be costly. If your IVA fails, creditors can add interest and charges that built up while the IVA was in place and they would be free to take enforcement action, for example by making you bankrupt. As there are fees to pay in an IVA, you may also find that the balance of your debt has not reduced by the same amount you paid into the IVA.
• Risk to accommodation if you rent your home. If you rent your home, check the terms and conditions of your tenancy agreement or occupation contract. It may say that your landlord can end your tenancy or occupation contract if you enter into an IVA. Even if your tenancy agreement or occupation contract does say this, your landlord may choose not to end your tenancy or occupation contract, especially if you are up to date with your rent payments.
• Some homeowners may be expected to use equity in their home. In some circumstances, if you own your home, the IP and creditors may ask you to agree to re-mortgage your home as part of the IVA. Your home should not be affected if you do not have high equity in your home and you propose an IVA that follows the IVA Protocol. See the earlier section What if I own my home?.
• Impact on your credit rating. 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.
• You may pay more than you expected. The terms of an IVA usually require you to increase the amount you pay into the IVA if your circumstances improve. For example, you may have to increase your contributions if you have a pay rise, or you may have to contribute a significant proportion of any windfall you receive (such as an inheritance) during the IVA.

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?

Public register

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 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 main 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 guide for more information.

Complaints

Put your complaint in writing to the 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.

Alternative solutions

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 spare income of £75 a month or less after essential living costs. Your total debt must be £50,000 or less to qualify for a DRO.

There are advantages and disadvantages to each solution. It is important to consider these carefully before you make a decision about which solution is best for you.

See our Ways to clear your debt guide for more information.

FAQs

Are IVAs free?

No. You need to pay for the services of an insolvency practitioner (IP) for an IVA. The amount that IPs charge can vary. However, it is usually possible to find an IP that does not charge anything up-front and will take their fees from the payments you make into your IVA. For IVAs that complete successfully, the level of the fee may not be so important as you will usually have paid less into your IVA than you owe. However, if your IVA fails, your debts will become fully payable and a large proportion of the payments you made into the IVA may have contributed to the IPs fees rather than reducing your debt.

Is an IVA the same as bankruptcy?

An IVA is a different solution to bankruptcy.

An IVA is an agreement to repay part of your debt, usually over five or six years. Bankruptcy usually sees your liability for most debts end after one year, but you may have to make some payments for up to three years.

An IVA involves paying a fee for an IP’s services, but you can usually find an IP that will take their fee from the payments you make into the IVA. There is a lower fee to apply for bankruptcy, but you have to pay the whole fee before you can submit your bankruptcy application.

Assets can be included in an IVA, but you have some control as you can choose not to enter into an IVA if creditors want you to include assets. When a bankruptcy order is made, you lose control of your assets. Your assets may be sold to raise money for your creditors. Bankruptcy may be a better solution for you if you have little or no assets.

See our Bankruptcy guide for more information.

Are IVAs usually accepted?

There is no public information on the outcome of all IVA proposals that are put to creditors. Each creditor included in an IVA proposal gets to vote on whether they accept it. The likeliness of your IVA proposal being accepted can be affected by different factors, such as:

• who you owe money to;
• the proportion of your total debt that is owed to each creditor;
• how much you propose to pay into your IVA; and
• how much your creditors may be able to receive through taking enforcement action.

Generally, there is more likeliness of an IVA proposal being accepted if creditors believe that it would see them get a better return than they would if you were made bankrupt.

Is an IVA a good idea for me?

An IVA may be a good solution for you if:

• you can afford to make payments into an IVA, usually through monthly instalments;
• you are struggling to pay your debts; and
• there is a reason that bankruptcy is not suitable for you, for example bankruptcy may put your home or job at risk.

If you are considering applying for an IVA, it is best to contact us for advice. An adviser can look at your circumstances and help you fully understand what solutions are available to help you deal with your debts, including whether an IVA or another solution is more suitable for you. See our Ways to clear your debt guide for more information.

Useful contacts

The Insolvency Service www.gov.uk/government/organisations/insolvency-service

Other guides that may help you

Bankruptcy guide
Breathing space guide
Credit reference agencies guide
Safe bank accounts guide
Ways to clear your debt guide