What is an IVA?

An individual voluntary arrangement (IVA) is a legally binding agreement between you and your creditors to repay your debts over a set period. A UK court will have to approve the IVA, and once agreed, your creditors must adhere to the plan.

Setting up an IVA can offer the flexibility you need to pay off your debts, but they can also be expensive and have certain risks.

An IVA may be required in cases where you have sought to borrow money online or in-person but have subsequently been unable to make your repayments. In such cases, you should always contact your lender as soon as possible, and an IVA may be how you proceed to repay the debt over an agreed period of time.

How Does an IVA Work?

If you choose to get an IVA, a plan will be worked out that will help to enable you to repay your debt or loan to your creditors. IVAs can be flexible too. This could be in the form of monthly payments, a lump sum, or a combination of the two.

The repayment plan will be based on your finances to provide an amount you can reasonably afford. IVAs can last several years, depending on the amount borrowed and the specific borrower’s circumstances. During this time, the borrower will make monthly repayments to the lender until the entire debt and interest are repaid. If the IVA term expires and you haven’t covered your debts in full, you won't have to pay the remaining balance.

How Do You Set Up an Individual Voluntary Arrangement?

To arrange an IVA, you will need to seek the help of a professional. Only a qualified person, called an insolvency practitioner, can set up the agreement.

If you decide that getting an IVA is right for you, an insolvency practitioner will advise you on whether your debts are suitable and whether or not you qualify in your specific circumstances. If your debts are eligible, you will then be able to work out a practical repayment plan with the insolvency practitioner.

How Can an Insolvency Practitioner Help With an IVA?

Your insolvency practitioner will usually be a lawyer or an accountant who will charge fees for setting up the IVA.

Costs are calculated based on the amount you will be paying back. Typically, these professional fees are very high and you should always take this into account before you seek an IVA for any reason.

Throughout the term of the agreement, the insolvency practitioner will deal with your creditors, too. You will make all of your repayments directly to the insolvency practitioner, who will distribute the money to your creditors.

Some of this money is kept to pay their fees, and the insolvency practitioner should advise you about this when you enquire.

Do You Need to Use a Debt Management Company For an IVA?

A debt management company can help you arrange an IVA. However, if you use a debt management company, carefully check how much they will charge. A debt management company will likely be much more expensive because they charge an extra fee on top of the insolvency practitioner's fees.

You are not required to use a debt management company to set up an IVA. Instead, you can find an insolvency practitioner on the gov.uk website.

Which Debts Can and Can't an IVA Cover?

An IVA can be used to repay most debts. However, there are some exceptions.

Here are some tyoes of loans that can and can't be covered by an IVA in the UK:

Can I Use an IVA For Mortgages, Secured Loans, and Rent?

While you can include secured loans, mortgages, or rent arrears in an IVA, your creditor has to give their permission. Most often, they are unlikely to do this.

It is more likely that you will be able to utilise an IVA in cases where you have perhaps borrowed money to cover the costs of your grocery shopping and then fallen into arrears, or perhaps borrowed money to pay off pressing credit card bills and then been unable to make your scheduled repayments.

How Much Debt Can Be Included in an IVA?

You can cover any amount of debt in an IVA from any number of creditors.

Legally, there is no minimum or maximum amount for utilising an IVA. However, fees for IVAs are high, so if your debt comes to less than £10,000, an IVA might not be the best debt solution for you. Therefore, if you have accrued debts in the form of a £1,000 loan and a £300 loan, you may not be suitable for an IVA based on how much you owe.

An IVA is also more suitable for people with more than one creditor.

Maggie Clarke Content Ops Lead

Maggie leads the content operations team at Doddler.co.uk. She is an expert on personal finance, by way of a lifetime of gathering practical knowledge on what to not do with your pocketbook. When not blogging about money, Maggie can be found rambling through the roughest terrains. She considers herself charming yet troublesome and would love to meet you someday, just not today.