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How do IVAs work?

An individual voluntary arrangement (IVA) is an agreement between you and your creditors (people you owe money to) to pay all or part of your debts. You make regular payments to an authorised debt specialist called an ‘insolvency practitioner’ (IP). They share this money out between your creditors as agreed in your IVA.

There is no maximum or minimum level of debt and no maximum or minimum level of repayments, except what is acceptable to your creditors. Your IVA usually ends when the agreed amount has been repaid.

Benefits of an IVA

Benefits of an IVA include:

• your IP can help you work out how much you can afford to repay
  
• your IP will contact all your creditors and get them to agree to your IVA for you
  
• your creditors can’t take any action against you – for example, taking you to court or making you bankrupt
  
• interest and charges are usually stopped

While your IVA is being set up, your IP might be able to get the court to issue an order preventing your creditors taking further action against you.

Get free debt help and advice

You should get free and independent advice about IVAs and if they are the best way to deal with your debt problem. Many organisations offer free and independent advice about how to deal with your debts.

• Debt - where to get free help and advice

The costs of an IVA

An IP will charge a fee for negotiating with your creditors and managing your IVA. For example, you might pay a ‘setup fee’ and an extra fee every time you make a monthly payment.

Make sure you understand the full costs of your IVA before asking an IP to act for you. If you need help, get free advice from an organisation like Citizens Advice or the National Debtline.

• Find your local Citizens Advice Bureau

• Free debt advice and information from National Debtline Opens new window

How to get an IVA?

Only an IP can set up an IVA and you have to prove to them that you can afford to make regular repayments. There are five steps to get an IVA.

Step one: contact a free and independent debt advice organisation to make sure the IVA is the best way for you to deal with your debts.

Step two: get an authorised IP to act as your IVA nominee. This means they will help you prepare your IVA and send it to your creditors.

You can get free advice from organisations like Citizens Advice and the National Debtline if an IP doesn’t agree to act for you.

Step three: if the IP agrees to act as your nominee, they will help you prepare your IVA. You will have to provide details about:

• your assets and income which can be used to pay your debts
  
• your expenses – for example, household and food bills
  
• your debts – for example, how much you owe including any interest or charges
  
• your creditors – you must provide a full list, any missed out can apply to the court to have your IVA cancelled

Step four: the IP will arrange a meeting with your creditors to accept your IVA. You don’t have to attend this meeting, the IP will represent you.

For your IVA to be accepted, creditors who hold more than 75 per cent of your debts must agree to it. The IVA will then apply to all your creditors, even those who objected to it.

You can get free advice from organisations like Citizens Advice and the National Debtline if your creditors don’t accept your IVA.

Step five: If your IVA is accepted, the IP will act as your IVA supervisor. This means they will manage your payments to your creditors, distributing them as agreed.

• Find an insolvency practitioner

Your responsibilities when the IVA starts

If you don’t keep up your monthly payments, your creditors can cancel your IVA. If your IVA is cancelled your creditors can take further action against you. This can include taking you to court or making you bankrupt.

Let your IP know if your financial situation gets worse, for example, if you lose your job. They may be able to get your creditors to agree to lower monthly payments.

How an IVA affects your credit rating

Your IVA will be listed on the Individual Insolvency Register, an online database used by credit reference agencies to update your credit rating. It’s harder for you to open new bank accounts, get loans or buy on credit if you have an IVA.

• The Individual Insolvency Register

• Credit reference agencies Opens new window

More useful links

• Debt - where to get free help and advice

• Dealing with debt problems - a guide

• Complain about an insolvency practitioner

Useful contacts

• Money, tax and benefits contacts