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An Individual Voluntary Arrangement (IVA) is a formal debt solution that creates a legally binding agreement between you and the people you owe money to. You may decide to enter an IVA if you’re struggling to repay the total amount of unsecured debt you currently have but can repay some.

An IVA can be a positive way to manage unaffordable unsecured debt and allow you to better manage your monthly finances.

In an IVA a single monthly payment is agreed with your current financial situationtaken into consideration – this payment is then divided between the people you owe money to. During the course of your plan all interest and fees associated with your debts are frozen.

At the end of the IVA the remaining debts are written off and you can begin your debt-free future.

Usually you will only be able to undertake an IVA if your total unsecured debt is more than £6,000. In addition, you will usually need to be able to afford a monthly payment of at least £80.

Yes, an IVA will have an impact on your credit rating as it will show on your credit report for six years after it has been approved. However, it’s important to note this is the case for most debt solutions and your credit score will likely already have been affected by being in debt in the first place.

Once your IVA is complete you will be offered a fresh start to begin rebuilding your credit rating.

While you are in an IVA, you will not be able to use your store or credit cards. These must be cut up. However, it may be possible to change an existing mortgage or take a new one while you are in an IVA. In addition, you may be approved to borrow up to £500 if this is agreed with the insolvency practitioner. You will be able to use prepaid cards.

Damaged Credit Rating

Your credit rating will be effected and you will be unable to borrow for the duration of the IVA. You will also have a period after your IVA where it may be hard to get credit. This period varies but a credit rating can be repaired over time.

Longer than Bankruptcy

An IVA will usually last for 5 years compared to bankruptcy which will usually only last 1 year unless you have a payment order and this will last three years.

You will pay back more than you will in bankruptcy

In an IVA you will pay back as much as you can afford over the 5 years (e.g. 20%-50%) as opposed to bankruptcy where you will pay back a minimum amount (which could be as little as 0%).

You must include all creditors

All creditors must be included and you cannot make separate arrangements with each one (which can be done in a DMP).

Professional Status

Some jobs do not allow the employee to become bankrupt or be in an IVA. It is important to check the terms and conditions of employment to be sure of this.

Insolvency register

IVA is a form of insolvency as is bankruptcy, so your name can be searched in the insolvency register which is available on the internet. However, someone would have to have a reason to do this; the information is not advertised in any way.

Risk of Bankruptcy

If IVA fails there is a risk of bankruptcy and lenders can chase customers for the debt and interest was suspended could be added to their debt

Impact On Mortgage Rates

Homeowners may need to release equity from the value of their homes to pay off debts, and a remortgage may attract higher interest rates or, if no remortgage is available, an individual voluntary arrangement may be extended for 12 months.

Restricted expenditure

No Guaranteed Acceptance

Lenders do not need to approve the IVA

Doesn’t Cover All Debts

Debt not included within the IVA will remain outstanding