IVA – Individual Voluntary Arrangement

An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors. The arrangement will normally last 5 years and during this period you will be expected to pay what you can afford outside reasonable living costs. An IVA has to be set up by a licensed professional called an Insolvency Practioner (IP). All unsecured debts must be declared into an IVA.

What is the Purpose of an IVA?

The IVA helps those in financial difficulties to make a formal proposal to settle their unsecured debt within a reasonable timeframe.

All interest and charges will be frozen to 0% and creditors will be prohibited from demanding additional payments.

How are the monthly payments calculated?

Monthly payments are based on what you can afford – this payment will be pre calculated before any agreement takes place and can vary during the 5 years depending on any fluctuations with your income and expenditure. Once the final payment is made, any outstanding debt is legally written off. The arrangement can write off a significant portion of your unsecured debt – in many cases more than 70%. Homeowners may be required to release equity at the end of the 5 years, however, your home is never at risk.

How does it work?

Once a decision has been made that an IVA is right for you (always seek professional advice from a reputable debt consultant) you will be required to undertake an assessment regarding your current financial situation. Based on the information you have given, a repayment amount will be calculated. For an IVA to be approved, creditors will be called upon to vote either for or against the arrangement.

The IVA will be legally binding. As long as you keep up the repayments, when the term of your agreement is finished, you will be free from these debts regardless of how much has been paid off.

During the period of your arrangement your financial situation will be reviewed annually to see if there has been any change in your circumstances.

Once the IVA is accepted the IP’s role becomes that of supervisor, monitoring the IVA’s progress and ensuring that the terms and conditions that were agreed to at the creditors meeting are properly adhered to.

It is your responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis until the successful completion of the IVA. It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the IVA.

Upon the successful completion of the IVA you will be considered debt free. Any outstanding balances are written off..

It is worth noting that if you do enter into an IVA with your creditors and you have an endowment policy linked to your mortgage then you may be expected to cash it in and pay the proceeds into the arrangement. Likewise, if your property has a reasonable amount of equity then it is likely that some of it will have to be released during the arrangement (usually at the end) so it can be paid to the creditors. Drastic as this may sound it can be a deciding factor in whether an IVA is approved by creditors and a realistic way in which you can retain your property.

What Are the Differences between a DMP (Debt Management Plan) and an IVA?

• Although a DMP may greatly reduce your repayments each month, you will still have to pay all of your debt back. This could take a very long time. Example: A debt of £20,000 with reduced monthly repayments of £200 a month will leave you repaying your debt for at least 9 years.

• Your creditors do not have to stop adding interest and late payment charges. Some may for a short period (perhaps 6 months).

• Creditors may want to review the situation. This means that the reduced amount paid each month may only just cover the extra interest being added. If this is the case, then the debt will never be repaid.

• Your creditors can break the agreement at any time and asked for increased payments or add further interest.

• Not knowing where you stand with creditors, may have you always waiting for that next payment demand letter to come through the post.

Why use an IVA?

• You have an agreement with your creditors to make a single reduced payment each month.

• It lasts for a sensible period of time (normally 5 years).

• Once agreed, creditors are not allowed to add further interest or charges to your accounts by law.

• The agreement is fixed, meaning that creditors cannot randomly demand changes to it.

If you would like more information you can contact

The IVA Helpline 0800 876 0 999

or try the IVA Calculator.

Regional Numbers


Citizen advise bureau – 01482 224608

Council – 01482 300300


Citizen advise bureau – 01582 486632

Council – 01582 546000


Citizen advise bureau – 0844 826 9713

Council – 01942 244991

Free advice on debt based on what’s best for you – 0800 138 1111 www.stepchange.org/