What is an Individual Voluntary Arrangement? (IVA)


An Individual Voluntary Agreement (IVA) is a formal and legally binding agreement that a borrower has with their creditors, to pay back all of their debt or meet agreed monthly repayments to pay it off.



When an IVA is in place, creditors are prevented from charging borrowers’ additional interest on their debts and chasing them for payments.


However, when an IVA is in motion, borrowers are expected to:

  • Meet the minimum agreed payment — whether it be a monthly repayment or paying it off in one lump sum if they can.
  • Let their insolvency practitioner or IVA provider know of any increases in income or any changes to their financial situation (for example, any financial gifts or aid received).
  • Not take out any new credit or loans while paying back their creditors through an IVA.

How does an IVA work?


The purpose of an IVA is to give those who are struggling to manage their debts a structured plan and an outlined strategy to help repay their borrowings.


To set up an IVA, those that need a hand repaying their loans must go to an insolvency practitioner — known as an IP — that will help to work out a suitable repayment plan. This should cover how much will be repaid each month and for how long until all debts are settled. The IP will take the agreed amount and divide it between each creditor, based on the terms of the agreement.


An IVA can only go ahead if the creditors or loan providers holding 75% of your total debts agree to the terms and conditions — should they agree, they aren’t allowed to chase for repayments directly while the IVA is active. 


However, it’s important to note that some IVA providers and independent IPs charge for their services or advice — sometimes even when not all creditors agree — so it might be a good idea to read the terms and conditions that each IP or IVA provider offers before going ahead.


How to set up an IVA


To set up an IVA, you would start by talking to an IVA provider or independent IP and they’ll handle the process for you.


They might ask you a few questions about:

  • Your current personal circumstances
  • Any and what kind of debts you’ve taken out
  • Your available income and potential outgoings


Advantages and disadvantages of an IVA

An IVA can provide people who have debt they’re struggling to repay, an alternative way to handle it — however, there are things to consider before going ahead. 


Some of the potential advantages of an IVA include:

  • Debt management – An IVA can outline a clear path to paying off your debts — often helping you see a route through a seemingly impossible problem. It can help you chip away at long-standing debt in a way that’s manageable. 
  • Legal protection for those with debts — An IVA can offer a way for people to safely tackle their debts without the stress of on-going chasers and follow-up calls from creditors for payments — helping to alleviate the pressure of being overwhelmed by debt. 
  • Can help avoid bankruptcy — With an IVA in place, it’s possible to tackle your debts and even have some written off in some cases — helping those in financial debt avoid the implications of bankruptcy. 
  • Can assist in debt write-offs — IVAs — like other forms of debt management — can lead to debt write-offs down the line, when the terms have been adhered to. However, even with perfect financial practice this isn’t guaranteed. 


There are some potential disadvantages of an IVA: 

  • They can impact your credit rating — Signing up to an IVA can blemish your credit score as it can be used as evidence that you’ve struggled with debt management in the past — meaning potential lenders and creditors could be wary of pursuing future applications. 
  • Limited eligibility — Because an IVA can lead to debt write-offs down the line there are strict criteria to be adhered to. Not only do you have to come to an agreement with an IP, but the creditors also have to agree – sometimes making it difficult to define terms of the agreement that are accepted by all parties. 
  • Additional costs and fees — IVAs aren’t usually free. Paying an IP to establish a payment plan and balance the requests of the creditors can cost you money you may not have when dealing with on-going debt problems. 
  • Temporary restrictions on financial activity — When you’re paying debts through an agreed IVA, it can limit your ability to access credit — like loans or future Credit card applications — while the IVA is ongoing. Unfortunately, it can also impact your ability to get credit even when the IVA has concluded and all debts are settled, as it remains on your credit history for up to six years after.


Who are IVAs suitable for?

IVAs are often suitable for people who have: 

  • Money available and a determination to pay off their debts. 
  • A lump sum or assets that can potentially be included in the repayment plan. 
  • A combination of spare money each month, assets or a lump sum. 

However, IVAs could only be suitable for those who owe £10,000 or more across a range of creditors — potentially not for those with smaller debts and a single creditor. 


Alternatives to IVAs

IVAs are just one avenue you can explore if you’re looking to overcome seemingly insurmountable debt. Some of the alternatives that are worth considering are: 

  • Debt consolidation loan — Consolidation loans are often used to help people pay off multiple debts to a range of creditors. Once these are repaid through the loan, only the single loan payment needs to be made, potentially reducing worry about arranging multiple payments or dealing with separate deadlines. 
  • Debt relief order In a limited number of cases, those struggling with debt can qualify for a debt relief order (or DRO). A DRO advisor can help people write off their debts if they owe less than £30,000, and don’t have much spare income. However, this can be difficult for many to access and is only in place for as long as their financial situation remains the same. 
  • Debt management plan — Where an IVA is a formal agreement, a debt management plan (DMP) is an informal agreement. It’s a structured plan to help people manage their debts without the contractual agreement and obligations. 
  • Declaring bankruptcy — Declaring bankruptcy means entering a legal status that you don’t have the capital to pay debts — and can lead to some of those debts being cleared over time. However, being in a state of bankruptcy can have long-term implications and negative impacts on your future financial opportunities.


Can you apply for a Credit Card with an IVA?

Generally with an IVA there are rules and restrictions that limit your ability to take out further credit or borrow any more money until the IVA has finished, debts have been paid, or any remaining debt has been written-off. 

You may be able to apply for additional borrowing or a Credit card, depending on your financial situation and how lenient your IP is. However, you need written permission from the IP to be able to put forward an application — and there’s no guarantee you’ll be accepted. 


Does an IVA affect your credit score?

An IVA could impact your credit score as it can indicate to prospective loan providers and creditors that you are having financial difficulties or have had difficulties managing debt in the past — making you possibly appear risky and therefore less likely to be granted credit. 

However, after six years an IVA will be taken off your credit file and it will be no longer contributing negatively towards your credit score. 

Luckily, there are ways to build your credit, even if an IVA is present on your file, to try and limit the impact.




Can an IVA take my tax refund?

An IVA takes an agreed amount of money as a repayment and distributes it among the creditors. This includes any windfalls — which are surprise or unforeseen acquisitions of capital — from sales of valuable items, to inheritance or a one-time event like winning a prize. 

Typically, IVAs don’t consider a tax refund as a windfall — unless the IVA has a specific windfall clause — so won’t immediately take it to pay off your debts unless you give the IP permission to do so or make the payment yourself. However, you will have to declare it.


If your IVA does contain a windfall clause — that outlines how much “surprise income” meets the repayment criteria of the IVA — then HMRC will likely pay the tax refund directly to your IVAs and creditors to be shared as per the agreement. 


Can I go on holiday with an IVA?

Although your IP will be responsible for putting together a plan, they can’t force you to spend your money a certain way. 

As long as you are meeting the agreed minimum monthly repayment to satisfy them and the creditors, you can spend your money how you want to — even when an IVA remains active. 


Can I get a mortgage with an IVA?

Yes, you can apply for a mortgage while an IVA is active, but you will have to run it past your IP. An IP won’t prevent you from trying to do this unless they believe it will seriously impact your repayment plan. 

However, it’s possible that you may not be accepted for a mortgage with evidence of an IVA on your file. It takes six years for an IVA to drop off your credit file. 


How serious is an IVA?

IVAs are legally binding — meaning that the repercussions of not making your repayments are usually more severe than a non-binding verbal agreement. 

The impact of not following the terms and conditions vary depending on your IP. Some might choose not to take further action and simply terminate the IVA, whilst others might declare bankruptcy on your behalf if they see fit. 

The repercussions of not paying your IVA can be more severe – resulting in court action and potential prison time — if you’re found to be committing criminal activity like hiding money away from your IVA and not declaring assets ahead of time 


Can an IVA be settled early?

If you run into windfall capital and you can afford to pay off large chunks or even the entire amount of what you owe, you can make the choice to pay it off early. 

However, it’s often helpful to consult professionals for financial advice to make sure you’re not paying off more than you can afford, should you come into extra money.