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Individual Voluntary Arrangement (IVA)

Individual Voluntary Arrangements

If you’re struggling with debt, you might consider entering into an Individual Voluntary Arrangement to take control of the situation and make it more manageable.

At Lawhive, our network of insolvency lawyers can advise whether an Individual Voluntary Arrangement is the right way to deal with your debt and guide you through the entire process to make sure the agreement is in your best interests. 

To get started, contact our Legal Assessment Team for a free case evaluation today.

What is an Individual Voluntary Arrangement (IVA)? 

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your unsecured creditors to repay an agreed-upon amount of your debts over a specific period.

Instead of declaring bankruptcy, you agree to pay back some or all of your debts through regular payments to an insolvency practitioner, who shares that money among creditors. 

Under an IVA, creditors also agree to halt any further interest and charges

Once the arrangement is completed, any outstanding debts included in the IVA are written off. If you don’t keep up with your repayments under an IVA, you can be made bankrupt.

Is an IVA right for me? 

People suitable for an IVA typically: 

• Have a steady income, like from a job or pension

• Have multiple types of debt

• Have simple assets. 

Age and debt level shouldn’t stop someone from applying for an IVA, but they might affect how viable an IVA is. 

IVAs usually aren’t suitable for people with very little debt (under £5,000) or those eligible for a debt relief order (DRO). Further, if someone’s income only comes from benefits or a state pension, an IVA might not be the right choice for them. 

What is the IVA protocol?

The IVA protocol aims to make it easier to handle Individual Voluntary Arrangements. It recognises the importance of allowing people to deal with their debts while respecting creditors’ rights to get their money back. 

How do you get an IVA? 

In an IVA, you manage your debts with the help of an Insolvency Practitioner (IP).

An IP is someone like an accountant or money, tax, and debt solicitor authorised to set up IVAs. You can’t get an IVA without an IP. 

Your IP will help you create a proposal outlining how you’ll pay your debts. They then send this proposal to your creditors. The proposal should explain how the money you will pay to your IP will be split up, including covering the cost of the IP for drafting and setting up the IVA, supervising the IVA, and paying back the creditors.

While you do this, your IP can also apply to the County Court for an interim order which will temporarily stop your creditors from taking legal action against you while the IVA is being sorted out. 

A formal meeting, called a creditors meeting, will then be arranged by your IP where creditors vote on whether to accept the IVA proposal. For the IVA to go ahead, those holding at least 75% of the total debt must vote for the proposal. 

Sometimes, creditors may suggest changes to the IVA proposal, like asking for higher payments or extending the repayment period. However, any changes must be agreed upon by you. 

If the IVA is agreed, your IP will oversee the arrangement to make sure you’re making the agreed payments.

How long does an IVA last? 

An IVA can vary in duration, but most last between 5-6 years.

How much does an individual voluntary arrangement cost? 

IVAs require fees for setup and maintenance, but these costs aren't fixed. They depend on your situation.

Different IVA companies have different fee structures. Some take fees from your monthly repayments, while others collect them at different times. It's important to understand these differences before choosing an IVA.

What are the advantages of an IVA? 

If you’re struggling with debt, an IVA can help by: 

• Binding your creditors into an agreement, offering relief from constant pursuit during the arrangement period. 

• Consolidating your debts into one regular payment or lump sum paid to an Insolvency Practitioner instead of juggling payments to multiple creditors 

• Reducing debts, as creditors may agree to accept partial payment.

What are the drawbacks of an IVA? 

Despite offering relief from creditor pressure and a structured repayment plan, IVAs have significant downsides. 

Firstly, the associated fees, like setup and handling fees, can make IVAs financially viable only for those with substantial debts over £10,000. Certain debts, such as mortgages, can't be included in an IVA, requiring separate repayment and potentially leading to home remortgaging. 

Plus, the lengthy duration of IVAs, often around 60 months with possible extensions, may limit financial flexibility, especially if expecting windfalls like inheritances. 

Lastly, IVAs being publicly listed on the Individual Insolvency Register may compromise privacy, making them less appealing for those seeking discreet debt management solutions.

Is an IVA good or bad? 

An IVA isn't inherently good or bad; it's just an option to help if you're struggling financially. Before committing, it's important to understand how it could affect your personal and professional life, and credit score, as well as knowing all the costs involved.

What debts can be included in an IVA? 

Lots of types of debt can be included in an IVA proposal, including council tax arrears, utility debts, and tax debts. 

Hire purchase agreements may be included in an IVA but you should check your agreement as sometimes it might say that if you get an IVA, the lender can take back the thing you’re paying for, like your car. 

What debts can’t be included in an IVA? 

Some debts that can’t be included in an IVA include: 

• Maintenance, or maintenance arrears, ordered by a court. 

• Child Maintenance Service or Child Support Agency arrears. 

• Magistrates’ court fines. 

• Mortgages, secured loans, or rent arrears unless your lender or landlord agrees

• Student loans

• TV license arrears.

If you have debts that can’t be included in an IVA, you must pay these separately alongside the IVA payments. 

In cases of joint debts, an IVA only covers you unless all parties enter into an Interlocking Individual Voluntary Arrangement, so including joint debts might not be the most suitable choice as it can leave the co-debtor responsible for the entire debt. 

What happens if an IVA gets rejected?

If your IVA proposal is rejected, you won’t get back any fees or costs you’ve paid during the process. You’ll also find yourself back where you started with your debts. 

If you’re unsure about what to do next, it’s a good idea to get some advice. Applying for a new IVA might not be the best choice unless your circumstances have changed significantly, or you can improve on the previous proposal. 

Without an IVA in place, you’ll need to negotiate with each creditor individually to try and agree on how to manage your debts moving forward. 

What happens if an IVA is breached? 

If you break the rules of your IVA, the person in charge will look into what happened and why. 

If you break the rules before making any payments, they’ll also check if the IVA was the right choice for you and if there’s anything to learn from the situation. If they find that the IVA wasn’t the best option, or if it seems you were likely to breach the IVA based on your situation and what you told them, any payments you made might be returned to you, and the IVA will be ended. 

If the IVA doesn’t go as planned and you don’t finish, you will be responsible for all the debts and interest that built up during the IVA. 

What’s the difference between an IVA and bankruptcy? 

Bankruptcy is often viewed as a last resort to deal with overwhelming debt, while IVAs offer a more flexible approach where individuals can negotiate repayment terms with their creditors. 

In bankruptcy, your assets may be sold to settle debts and your bank accounts are typically closed. IVAs, however, provide more leeway, considering personal circumstances such as the necessity of certain assets, like a car for work commutes. Individuals under an IVA also keep access to their bank accounts. 

What are the responsibilities of an Insolvency Practitioner in an IVA? 

Your insolvency practitioner is the person in charge of your IVA. Before putting together the IVA proposal, they will look at: 

• Your income and spending habits

• Your assets and debts. 

They also need to make sure you get property debt advice from a regulated firm. This includes checking if the IVA is a good fit for you in the long run and if your income sources are reliable. 

Throughout the IVA, you’ll need to give them certain information, and they’ll make sure you’re kept informed and know your rights. They’ll also make sure you can complain if needed and that you’re aware of how to do so. 

Does an IVA affect your credit rating? 

When you enter into an Individual Voluntary Arrangement, it will be noted on your credit report. As a result, your credit score will go down. A lower credit rating may make it harder for you to borrow money in the future. 

Get expert advice about Individual Voluntary Arrangements from Lawhive 

Dealing with debt can be stressful, but you don’t have to go through it alone.

At Lawhive, our lawyers are on hand to provide advice and practical support, helping you take control of your financial situation and make arrangements to ease the burden. 

Our IVA solicitors can help you understand what your options are when it comes to managing your debt, advising on whether an IVA is the best choice for you, and helping with the practical matters of drafting, proposing, and negotiating the terms of an IVA, all for an affordable, transparent fixed fee. 

To get started, contact us today.