Is an Individual Voluntary Arrangement (IVA) Worth It?
Navigate the complexities of an Individual Voluntary Arrangement (IVA). Gain clarity on this formal debt solution and its impact on your financial future.
An Individual Voluntary Arrangement (IVA) is a formal, legally binding debt solution. It establishes an agreement with creditors to repay a portion of unsecured debts over a defined period, typically five to six years. A licensed Insolvency Practitioner (IP) supervises this arrangement. IVAs are a specific insolvency procedure available only to residents of England, Wales, and Northern Ireland.
What an Individual Voluntary Arrangement Is
An Individual Voluntary Arrangement is an agreement between a debtor and their creditors, established under the Insolvency Act 1986. This arrangement allows individuals unable to repay their debts in full to propose a structured repayment plan. It aims to provide a path to debt resolution while offering legal protections from creditor action.
A licensed Insolvency Practitioner (IP) oversees the IVA process. The IP acts as a nominee before approval and as a supervisor throughout its duration. The debtor makes affordable payments over a fixed term. Upon successful completion of the IVA, any remaining unsecured debts included in the arrangement are written off.
IVAs address unsecured debts, such as credit cards, personal loans, and store card balances. Secured debts, like mortgages or car finance agreements, are not included in an IVA. An approved IVA protects the debtor, meaning creditors cannot pursue further legal action, add interest, or impose charges on the debts included in the arrangement.
Establishing an Individual Voluntary Arrangement
Establishing an Individual Voluntary Arrangement begins with an eligibility assessment. An individual must reside in England, Wales, or Northern Ireland. Most IVAs involve unsecured debts totaling £7,000 or more, owed to two or more creditors. The individual must demonstrate an inability to repay their debts in full and possess a regular, sustainable income to make consistent monthly payments.
The process starts with an initial consultation with a licensed Insolvency Practitioner. The IP gathers financial information to prepare a proposal. This includes a list of all debts (creditor names, amounts, and account numbers) and a breakdown of income and expenditure to establish an affordable payment amount.
Details of all assets, including property, vehicles, savings, and investments, must be disclosed. The IP drafts the IVA proposal, outlining the payment plan, duration, and creditor treatment. The proposal also explains why an IVA is a suitable option for the debtor and how creditors will benefit.
Once the proposal is prepared, it is presented to creditors for approval. For the IVA to be approved, at least 75% of voting creditors must agree to the proposal. Creditors have the option to suggest modifications, which the debtor can accept or reject. If approved, the IVA becomes legally binding on all creditors, even those who voted against it.
Living Under an Individual Voluntary Arrangement
Once an Individual Voluntary Arrangement is approved, the debtor makes regular monthly payments to the Insolvency Practitioner. The IP distributes these funds among the creditors, deducting fees. Consistent payments are crucial; failure to pay can lead to IVA termination.
The IVA accounts for changes in financial circumstances. Debtors must notify their IP of significant changes, such as income fluctuations or unexpected windfalls. If income increases or expenses decrease, monthly payments may be adjusted upwards. Conversely, if income falls or essential expenses rise, the IP may agree to a reduction in payments, though larger reductions may require creditor approval.
Annual reviews are conducted by the Insolvency Practitioner. During these reviews, the IP examines income and expenditure. These reviews ensure the IVA remains viable and may lead to adjustments in payment amounts. Cooperation with these reviews is mandatory; failure to provide requested information can jeopardize the IVA.
Debtors face restrictions during an IVA. These include limits on new borrowing without IP approval. The IVA is recorded on the debtor’s credit file, impacting their credit score. The debtor’s details are also added to the Individual Insolvency Register.
Completing an Individual Voluntary Arrangement
An Individual Voluntary Arrangement concludes when all payments and terms are fulfilled. After the final payment, the Insolvency Practitioner formally closes the IVA. This administrative period can take several weeks or months, during which the IP ensures all conditions of the arrangement have been met.
Upon completion, the Insolvency Practitioner issues an IVA Completion Certificate. This document confirms the debtor fulfilled their obligations and that any remaining unsecured debts are written off. The certificate should be retained as legal evidence.
The IVA entry on the debtor’s credit file is updated upon completion. An IVA remains on a credit report for six years from approval. After completion, the credit file entry will be updated from ‘active’ to ‘complete,’ still affecting creditworthiness during this period. The Insolvency Service register is also updated to remove the debtor’s details.
Re-establishing credit after an IVA requires rebuilding financial history. Debtors should check their credit reports for accuracy and updated IVA markers. Responsible credit use, like a small credit card with timely payments, helps demonstrate reliability. Enrolling on the electoral register also improves a credit rating.