A Guide to Individual Voluntary Arrangements (IVAs)

This Guide to IVAs provides information so you can:

• ask the important questions and make the right decision about starting an Individual Voluntary Arrangement (IVA);
• know your options if you encounter problems when you are in an IVA or at the end.

The firms that set up IVAs make large fees from them, so don’t think of them as impartial advisors.

If you want a simple overview, start with An introduction to IVAs. Then this Guide will let you go into more detail. However difficult your current situation, it’s important not to rush into an IVA before you explore the details and consider if you have a better alternative.

IVAs are often in the news – for all my articles on IVA and other insolvency developments, see Insolvency News & Policy articles.

IVAs – the essentials

An IVA is a type of insolvency like bankruptcy and Debt Releief Orders:

• it is long-term, legal contract between you and your creditors that can’t easily be changed or ended;
• typically, you make monthly payments for five or six years;
• if you have a house with equity, you usually have to remortgage in the last year or make an extra year of payments;
• at the end of a successful IVA, your remaining debts are wiped out.

An IVA may be a good debt solution for you if you have assets to protect.

But many IVAs fail. In 2019 this was about 30% about a quarter of IVAs fail, usually because you can’t afford to make the monthly payments that sounded affordable at the beginning. Five or six years is a long time and your situation can change a lot!

How to decide if an IVA is right for you

Read all of this page. The articles about things that crop up during an IVA will let you think what might happen in your life over the next five to seven years.

One general point. If there is anything big coming up in your life – new job, house move, possible redundancy, end of a car finance contract, retirement, child leaving home – it’s almost always better to wait until after this had happened, not sign up for an IVA beforehand.

If you have a house, read this!

One of the big pluses of an IVA over bankruptcy is the fact that a house with equity is protected. But that doesn’t make an IVA the best debt option for everyone with a house.

You will have to try to take money out of your house in the last year of your IVA. Read the section below on Equity Release before you start the IVA so you know what will happen.

Mortgage rates may increase in the next five or six years. If your mortgage payments go up, will you still be able to afford your IVA?

Will you want to move during the IVA? With an IVA on your credit record, you won’t be able to get a new mortgage for six years, even if your IVA has finished. See Can I sell my house to end my IVA? for details.

Do you have a car on finance?

This can cause a problem at the start of the IVA and also when the finance ends, as your credit record will then be very bad because of the IVA. Read Car finance in an IVA for details – it depends on what sort of finance you have.

Get a complete list of your debts

You need to have a good list of your debts and the amounts you owe before an IVA is started. Bankruptcy will automatically wipe out any debts you have, but in an IVA you have to list them or they are not included.

Although debts can sometimes be added later, you may find that your IVA is extended so it takes longer. It’s much better to get all the debts right at the start.

If you owe HMRC money, this usually means that you have to have submitted all the tax returns for previous years, see Tax debts – should I go bankrupt or for an IVA? for more details and talk to Business Debtline if you aren’t sure about this.

Bonuses, commission & overtime. And pay rises.

If you have a steady income and don’t expect it to change much, this section doesn’t matter for you.

But if you get irregular amounts and sometimes large lump sums, you need to know what will happen, see Bonuses & pay rises – what happens if you are in an IVA. Because normally about a half of the extra money is taken for your IVA and this does not mean your IVA finished any sooner. Your IVA will only end early if you repay all the debts in full plus the IVA firm’s fees, which will be at least £3,500.

And if you are expecting a really big payrise, you should probably avoid an IVA at all. Perhaps you are a student, expecting to get a good job when you finish uni. Or perhaps you will get a good promotion. In this situation, the IVA may write off little of your debt because you end up paying so much more into it. It would be better to wait until you get the new job and think about your debts then. A temporary Debt Management Plan will help get you through to that point.

Some special cases: pensions, disability, self-employed

• if you will get to 55 during your IVA, read Is your pension safe in an IVA?
• if you get disability benefits, read Should you use disability benefits to pay your debts?
• if you are self-employed or own a small company,  a “self-employed IVA” can work well provided that your business is profitable, read IVAs and the self-employed and talk to Business Debtline.

Are you talking to the right IVA firm?

A good IVA firm will help you understand all the terms in your IVA – keep asking questions until you are sure you know exactly what you are committing yourself to.

If you don’t feel your IVA firm is being helpful, talk to another one!

Ask who will administer your IVA. Some firms that set up an IVA then hand you over to a different firm to supervise the five/six year IVA. I don’t think this is a good idea. You also need to be able to have someone you can talk to about problems that occur, not be passed to some “warehouse” where you are just another case number.

Is there a better alternative for you?

Your IVA firm may be saying that an IVA is your best option, but they are going to make thousands of pounds in fees from your IVA. They could be right – but it’s your future so you need to make sure. Also you can’t assume what they are saying about bankruptcy or DROs is accurate – you need to talk to an impartial debt adviser.

Don’t think “It must be better than my current situation“, cross your fingers and sign on the dotted line. If you don’t like dealing with legal contracts, you can ask for help to understand the proposed terms at your local Citizens Advice.

IVAs were originally intended for people who have assets to protect such as equity in a house or shares in a private company. If you don’t have assets, then it is very likely that bankruptcy or a DRO will be over more quickly and cost a lot less than an IVA!

So look at the following comparisons:

• IVA or DRO  If you qualify for a Debt Relief Order that is always a better solution than an IVA! If you are renting and owe less than £30,000 in total, read Why a DRO is always better than an IVA   and then investigate further by reading What is a DRO? Don’t be one of the thousands of people every year who are mis-sold an IVA which then fails because you should have had a DRO.
• IVA or bankruptcy  Don’t be scared of the word bankruptcy and assume an IVA must be better, often bankruptcy is a MUCH better choice unless you have assets to protect:
  • 5 out of 6 people don’t have to make any monthly payments in bankruptcy.
  • IVAs and bankruptcy are exactly the same for your credit rating and your chance of getting a mortgage afterwards.
  • bankruptcy never goes wrong – 30% of IVAs fail leaving you back with your debts.
• IVA or a DMP If your situation may change – for better or worse – a flexible DMP is often better than an inflexible IVA.

If you have a partner with debts, don’t assume that both of you getting an IVA is the simplest option. Read Couples may need different debt solutions. It could be better (quicker, less risky) for one of you to go for bankruptcy or a DRO, or if one of you could avoid insolvency altogether and protect their credit record.

See if you can get refunds for unaffordable lending before you start an IVA. If a refund is large enough you may be able to clear other debts and not need a form of insolvency at all. Once in an IVA, your IVA firm will collect any refunds and distribute them to your creditors – this will NOT reduce the IVA payments you have to make or end your IVA earlier.

So it is often better to make affordability complaints and at the same time set up a debt management plan with StepChange to get you into a safer financial position while the complaints go through – then later on you can decide whether the refunds aren’t enough and you want to swap to an IVA – StepChange can arrange that – or if you want to carry on in a DMP.

What happens during an IVA

Budgeting and the annual review

You are probably going to have to work hard at budgeting to get through the next five years.  If you can save a bit each month, then you will be in a better position to manage any problems that occur, see An emergency fund.

All IVAs should have an annual review. If little has changed, this is normally quick and painless. but if your income has gone up you may have to pay more and if your expenses have gone up this is your chance to ask to pay less. See:

• What happens in an annual review
• Overtime and an IVA You get to keep some but not all of the extra money.
• Do you have to give your IVA firm your online banking logins? No, but it may be a good idea!

Switched to a different firm

Your IVA may be sold to a different firm. So much for how great and helpful your IVA firm is at the start, once you have signed up to an IVA your case can just be sold to another firm and you have no right to object. This is happening in increasing numbers:

• Creditfix bought Knightsbridge’s clients,
• Aperture bought Debt Free Direct’s IVAs, then in 2020 Aperture were themselves bought by Jarvis who confusingly then changed their name to Debt Movement
• Freeman Jones bought Harrington Brooks’s IVAs.

A few people with IVAs will find that their cases are sold two or three times during the life of the IVA.

When you can’t manage payments – your options

There is some flexibility built into IVAs but it may not be enough, especially if your monthly payments were low to begin with. If your income decreases or your expenses go up,  your IVA may fail, see:

• What happens if you can’t afford the IVA payments?

Some specific problems during an IVA – others can result from separation or illness problems:

• Made redundant – some of your redundancy money has to go into your IVA and if it isn’t enough to clear all your debts in full, plus the IVA fess, your IVA won’t end early;
• Pregnant  A short term drop in income during maternity leave can usually be coped wth but childcare care costs can prove a problem after you go back to work. And there is an extra mouth to feed and house.

If things go badly wrong, you may want to look at your other options;

• How much should I offer to settle my IVA early?  You may be desperate to end your IVA if things go wrong (or indeed if things go very well). But this won’t improve your credit record.
• Can I switch to a DRO? This may be an option if your IVA is failing but you need to know if you fit the DRO criteria.
• I want to sell my house to end my IVA This can be a very difficult option – find out why and what the alternatives are.  Do not sell your house without getting this agreed with your IVA firm first! It would have been much better to have sold your house at the start and never started the IVA, avoiding having an insolvency marker on your credit record making it impossible to get a new mortgage.
• What happens if you inherit money? This sounds like good news but the inheritance goes to your creditors. Your IVA only ends if there is enough to repay all your debts in full plus the IVA fees.

IVA failure rates have been increasing – in 2019 they were heading up to 30%. Not many IVAs failed in 2020 because everyone was given payments breaks due to the pandemic, but these people just had their IVAs extended so the failures will show up later.

If your IVA does fail, find out what happens – What are your options if your IVA fails?

Equity release and the dreaded “secured loan” clause

If you have a house you MUST find out about this in detail before you start your IVA. Don’t let it come as a nasty surprise in the 5th year.

• how equity release works in an IVA;
• must I take a secured loan in an IVA?  This is the story of a reader who was told he had to take a 15 year secured loan at 19% interest

Get a loan to end the IVA early?

You may be offered an “early exit loan” – don’t assume this is great, the promised credit rating improvements are mostly illusory, but they may suit some people. See Sprout early exit loans for details.

Complaining about an IVA

If something goes badly wrong, you may hope to complain and get some compensation, especially if you should never have been sold an IVA in the first place. You can certainly complain, but it’s complicated and you are very unlikely to ever get any money back.

However, threats of complaining sometimes seem to be the only way to make some IVA firms see sense:

• How to complain about an IVA
• IVAs and secured loans – how to complain.

At the end of an IVA

What happens after your last IVA payment?  – find out when you should stop making payments, what the Final Review is and who gets told that your IVA has ended.

How quickly will you get your IVA completion certificate? Some firms manage this in 8 weeks, some take longer than 8 months.

How to repair your credit record after an IVA finishes – it’s much the same after bankruptcy, an IVA or a Debt Relief Order. It doesn’t get any faster if you settle your IVA early

Why you may get a cheque for unclaimed dividends – this is pretty unusual, but good news if it happens to you!