What Are the Requirements to Qualify for an IVA?

An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between an individual facing financial difficulties and their creditors. This arrangement allows the debtor to repay a portion of their unsecured debts over a defined period, typically five to six years. An IVA is an insolvency solution within the United Kingdom’s legal framework, designed to help individuals manage unmanageable debt and potentially avoid bankruptcy.

Key Eligibility Requirements

To qualify for an Individual Voluntary Arrangement, an individual must satisfy several fundamental criteria. A primary consideration is the amount of unsecured debt held, which typically needs to be above a certain threshold. While this can vary, a common range for qualifying unsecured debt is usually around £5,000 to £10,000.

Furthermore, an IVA generally necessitates that the individual owes money to at least two or more distinct creditors. Residency is another strict prerequisite, requiring the individual to be formally resident in England, Wales, or Northern Ireland, as the legal framework for IVAs is specific to these jurisdictions. Separate insolvency rules apply for individuals residing in Scotland.

A fundamental criterion for an IVA is that the individual must be formally insolvent, meaning they are unable to meet their financial obligations as they become due. This financial state can also be demonstrated if an individual’s total liabilities significantly exceed the value of their assets.

Beyond insolvency, the individual must possess a regular and stable income stream that allows for a reasonable amount of disposable income each month. This disposable income, calculated after accounting for essential living expenses, forms the basis of the regular payments made into the IVA. The consistency of this income is paramount, as it directly supports the feasibility of the repayment plan proposed to creditors. The IVA proposal itself must be considered viable, presenting a realistic plan for debt repayment. It also requires a substantial level of creditor approval, typically needing 75% by value of the voting creditors to agree to the terms for the arrangement to proceed.

Debts and Assets Considered

When evaluating an Individual Voluntary Arrangement, the specific types of debts and the treatment of an individual’s assets are carefully assessed, directly influencing the viability and structure of the proposed arrangement. An IVA can typically encompass various unsecured debts, offering a consolidated approach to repayment. Common examples of includable debts are credit card balances, personal loans, overdrafts, and debts from payday loans or store cards. Furthermore, arrears on utility bills, council tax arrears, and certain debts owed to His Majesty’s Revenue and Customs (HMRC), such as tax credit overpayments or outstanding income tax, can often be incorporated into an IVA.

Conversely, certain types of debts are generally excluded from an IVA due to their nature or legal standing. Student loans, for instance, cannot typically be included within an IVA. Secured debts, such as mortgages or car finance agreements, are also usually excluded unless the creditor explicitly agrees to their inclusion, or a portion of the debt is unsecured. Additionally, obligations like child maintenance arrears, court fines, criminal fines, and social fund loans are typically not covered by an IVA, meaning these must be addressed separately.

The treatment of an individual’s assets forms a significant part of the IVA assessment, as these may contribute to the repayment plan. Equity held in a home is a notable asset consideration, where the Insolvency Practitioner will evaluate its value and potential for release. This might involve a potential equity release, the sale of the property in specific circumstances, or a lump sum payment towards the end of the IVA term.

Vehicles are also assessed, with their treatment often depending on their value and necessity. A vehicle considered essential for work or daily living might be retained, while a high-value or luxury vehicle could be subject to sale. Any existing savings and investments held by the individual will be assessed and are typically expected to be utilized as contributions towards the IVA. Pensions generally receive protection within an IVA; however, specific rules apply, and an Insolvency Practitioner will provide tailored advice on their treatment. The precise composition of an individual’s debts and assets, and how they are handled, directly shapes their eligibility and the overall structure of their IVA proposal, determining its feasibility and acceptance by creditors.

The Role of an Insolvency Practitioner

The involvement of a licensed Insolvency Practitioner (IP) is a mandatory and foundational element of the Individual Voluntary Arrangement process. An IVA cannot be proposed or supervised without the direct oversight of an IP, who acts as the crucial intermediary between the debtor and their creditors. This professional presence ensures the entire process adheres to legal requirements and ethical standards.

The IP’s initial and most vital function is to conduct a thorough assessment of an individual’s financial position to determine their eligibility for an IVA. This comprehensive review involves a detailed analysis of all income sources, monthly expenditures, the full extent of debts, and the valuation of assets. Through this meticulous examination, the IP ascertains whether the individual meets the specific legal criteria for an IVA, officially determining their qualification for the arrangement.

Following the assessment, the IP provides expert advice on whether an IVA represents the most suitable debt solution for the individual’s unique circumstances. This guidance takes into account the eligibility criteria previously identified, ensuring that the proposed solution aligns with the individual’s financial reality and long-term goals.

Once suitability is confirmed, the IP is responsible for drafting the formal IVA proposal document. This detailed proposal outlines the individual’s financial situation, the proposed repayment plan, and how creditors will be treated, all based on the IP’s comprehensive financial assessment. The IP then takes on the responsibility of liaising with all creditors, handling all communications, negotiations, and the formal voting process required for the IVA to be approved. Beyond the proposal and approval stages, the IP maintains an ongoing supervisory role throughout the entire term of the IVA. This continuous oversight ensures that the terms of the agreement are met by both the debtor and creditors, managing the payments, distributing funds to creditors, and addressing any issues that arise.