Individual Voluntary Arrangement (IVA): How It Works

GOV.UK says an IVA can give you more control of your assets than bankruptcy. In England and Wales, IVAs are set up under Part VIII of the Insolvency Act 1986.

The key features, according to GOV.UK and the Insolvency Service:

• You make regular payments to a licensed Insolvency Practitioner, who divides the money between your creditors
• Your insolvency practitioner works out what you can afford to repay and how long the IVA lasts
• Creditors included in your IVA stop asking you for payment once it starts, although they may still write to you from time to time to confirm account balances or statements
• Once you have made all the agreed payments, you no longer owe any of the debts included in your IVA
• You will not need to sell or use any equity in your home to pay for your IVA
• You may still be able to keep your business running, if you have one

What an IVA does not do:

• ✗No: It does not protect anyone you share a debt with: if you have joint debts, the creditors can still pursue the other person for payment
• ✗No: It cannot affect the right of a secured creditor to enforce its security unless that creditor agrees

Insolvency Practitioners charge a fee for their work, which is included in your monthly payments, not upfront. An Insolvency Practitioner must explain what fees will be charged before you agree to the IVA. Typically, your first monthly payments will cover more of the fee than the debts you owe.

GOV.UK says there are usually 2 fees, a set up fee and a handling fee each time you make a payment, so make sure you know how much it is going to cost before asking an insolvency practitioner to act for you.

Under the Protocol, in most cases a person suitable for a protocol IVA will:

• ✓Yes: have a regular sustainable income other than State benefits or State pension
• ✓Yes: have multiple debts with a combined total of £7,000 or more
• ✓Yes: have uncomplicated assets
• ✓Yes: not otherwise be able to repay their debts in full within the proposed IVA period
• ✓Yes: not be eligible for a debt relief order

The Insolvency Service says an IVA may not be the best solution if:

• ✗No: you have very low levels of debt
• ✗No: you can only afford a small payment each month
• ✗No: your income is mainly made up of benefits

The Protocol says that if a protocol IVA is not suitable, you may benefit from a bespoke IVA, a debt relief order, bankruptcy or another debt solution. GOV.UK lists other ways to deal with debt, including a Debt Management Plan, an administration order, a Breathing Space, a Debt Relief Order and bankruptcy.

A bankrupt is discharged from bankruptcy at the end of the period of one year beginning with the date on which the bankruptcy commences. GOV.UK says Debt Relief Orders are one way to deal with your debts if you owe less than £50,000, do not have much spare income, usually less than £75 per month, and do not own your home.

See our guide to bankruptcy and our guide to dealing with debt to compare your options, and our guide to Breathing Space for a pause while you decide.

If you can no longer afford your IVA, speak to your Insolvency Practitioner as soon as possible to discuss your options, such as reducing payments, a payment holiday or cancelling, and your creditors may need to agree to any changes. The Supervisor can allow payment holidays of no more than the equivalent of 9 months or 39 weeks of payments in total without a creditors meeting, and the IVA is extended by no more than 12 additional months to recover the sums.

If you stop making payments your IVA may be cancelled, although it can be extended to make up any missed payments. GOV.UK says your IVA can be cancelled by the insolvency practitioner if you do not keep up your repayments, and the insolvency practitioner can make you bankrupt.

If your IVA is cancelled, creditors can start to chase you for repayment again, and they may claim interest and charges that were frozen during the IVA period. If you cancel your IVA yourself, you will not receive a refund of any money you have already paid. You can usually keep up to a total of 6 months' redundancy pay, and any more than this should be paid into your IVA.

• In Northern Ireland, nidirect says an IVA is an agreement between you and your creditors to pay all or part of your debts, where you make regular payments to an insolvency practitioner.
• Generally the unsecured debts must be at least £15,000, but this does depend on the individual creditors.
• Only an insolvency practitioner can set up an IVA, and nidirect says that if creditors who hold more than 75 per cent of your debts accept it, the IVA will apply to all your creditors.
• If you do not keep up your monthly payments your creditors can cancel your IVA, and they can then take you to court or make you bankrupt.

• A trust deed is a legally binding agreement between you and the people you owe money to, to pay all or some of the money you owe.
• A trust deed can become protected if the majority of creditors are happy with its terms.
• When a trust deed is protected, your creditors cannot contact you directly, chase you for payments, add more interest or charges, or take any court action for unpaid debts.
• If a trust deed is not protected, your creditors can still take action to get back the money you owe them, and they can ask the court to make you bankrupt.
• Your trust deed must be protected for your debts to be written off at the end.
• You will usually make payments for 4 years, and if you have stuck to the terms you agree with your trustee, you will be discharged from the trust deed.

In Scotland you can also arrange a Debt Payment Programme from the Debt Arrangement Scheme.

For Scotland's Debt Payment Programme, see our guide to the Debt Arrangement Scheme.