What is an IVA?
If you’ve been struggling to keep up with your current repayment plan, then you might be considering an Individual Voluntary Arrangement (IVA). That’s why we’ve created this guide to explain what an IVA is and how they work.
This content is intended to be an impartial guide regarding individual voluntary arrangements (IVAs). Lowell Financial Ltd does not offer financial advice. You can find out more about the organisations you can contact in our guide on debt help and support.
What is an IVA and how does it work?
An individual voluntary arrangement, or IVA, is a formal agreement between you and the people you owe money to, known as creditors. This freezes your current debt and allows you to make monthly payments over a specified period, based on what is affordable to you. Your creditors should also stop charging interest on your debts once you have an IVA in place. Any remaining money you owe after this period will then be written off.
To arrange an IVA, you’ll need to work with a qualified professional known as an Insolvency Practitioner (IP) who will help you sort out a proposal to send to your creditors for agreement. You can also set up an IVA via charitable organisations like StepChange. There are costs and fees involved with the setting up and management of an IVA although these can vary.
If you’re a Scottish resident, you won’t be able to get an IVA but may be able to get a protected trust deed (PTD) which is similar. For more information, StepChange have a useful guide all about protected trust deeds.
It’s important to note that an IVA might not be the right debt solution for you and your situation which is why you should seek further free independent advice and support from trusted organisations to find out more.
How long does an IVA last?
Typically, an IVA will last five years. However, it can sometimes be extended for another year if necessary, taking it to six years. The length of your IVA depends on what you can afford to repay, which is determined by the Insolvency Practitioner (IP) based on the personal details you provide, including income, debts, creditors, and assets.
Over the six-year period, if you’re not able to make all the necessary payments then the IP will work with you and your creditors to find a solution, which may include extending your IVA. On the other hand, if you find that your circumstances improve and you want to end your IVA early, then you can make a lump sum payment.
How long does it take to set up an IVA?
Typically, it can take around four to six weeks to set up an IVA.
The exact timing of the process can vary based on various factors, such as how quickly you’re able to work with the Insolvency Practitioner (IP), provide any necessary evidence, and how quickly your creditors agree to the agreement.
Is an IVA the same as bankruptcy?
No, an IVA and bankruptcy are not the same thing and are different forms of insolvency. One of the main differences between the two is the length of time which they last - an IVA will often last for five years whereas a bankruptcy normally lasts one year.
For more information, be sure to read our dedicated bankruptcy guide.
Will an IVA affect my current mortgage?
Generally speaking, your mortgage won’t be included in an IVA. This means that you need to continue making payments as normal. If your mortgage payments change. You’ll also need to let your IVA supervisor know so that they can review your IVA payments.
If you’re interested in getting a new mortgage, having an IVA may make it harder to find a willing lender. The reason for this is that lenders are likely to view you as a high-risk borrower. There are also certain rules that you’ll need to follow as part of the arrangement, which includes needing the written approval from your IVA supervisor to be able to borrow more than £500.
If you’re struggling with your finances, we understand that you might be worried about how this can impact your mortgage eligibility. To find out more, be sure to read our guide on debt and getting a mortgage which goes into further detail.
Which debts can I include in an IVA?
Not all debts are suitable for an IVA. Priority debts, which are the debts that you should pay off first as they can cause serious problems such as a mortgage or council arrears, can be included. However, some other debts which wouldn’t be suitable for an IVA are things such as:
- Child support arrears
- Student loans
- TV licence arrears
- Maintenance arrears ordered by a court
- Social Fund loans
- Magistrates’ court fines
Any debts that aren’t included will have to be dealt with separately, so you’ll need to be able to pay those off before considering entering into an IVA. If you’ve got a joint debt, your IVA will not cover the other person and they’ll still be responsible for the whole of the debt. However, it is possible to have ‘interlocking’ IVAs where individual IVAs are taken out and connected.
If you’re unsure about which debts are suitable with an IVA, you can seek further advice from organisations, such as National Debtline, or speak to your Insolvency Practitioner (IP).
What are the advantages of an IVA?
There are both advantages and disadvantages to an IVA. That’s why it’s important to check that it is a suitable option based on your personal situation before entering an IVA.
- An IVA gives you the ability to make monthly payments over a long period of time (usually five to six years). These payments are made to be affordable based on your individual circumstances.
- If you’re a homeowner, as long as you can keep up with mortgage payments and any secured loans on the property then usually your home won’t be at risk.
- After you’ve made your final payment, any outstanding balance is written off and your creditors can’t contact you for future payments on that debt.
- If your circumstances change and you’re able to pay a lump sum, this can be done as a ‘full and final’ one-off settlement, or a lump sum in addition to your monthly payments.
- Once your IVA is approved by your creditors, any interest and charges should be frozen.
What are the disadvantages of an IVA?
As mentioned above, it’s best to make sure that an IVA is the right thing for you, and seek advice on IVAs, before taking any additional steps and entering into an individual voluntary agreement.
- There is the chance that your creditors may not accept your proposal for an IVA.
- At the end of your IVA, only debts included in the agreement will be written off and you’ll still be liable to pay the rest.
- An IVA isn’t private and will be recorded on a public register.
- Once you’ve set up an IVA you will have to follow a stricter spending budget.
- If you’re a homeowner, you might need to release equity from your home or remortgage which may have high interest rates.
What happens if I stop paying my IVA?
When you miss payments to your IVA, you should receive a ‘notice of breach’ from your Insolvency Practitioner (IP). In this document, you’ll be asked to explain why this happened and to arrange to cover these missed IVA debts as soon as possible.
A lot of IVA agreements will give you one month to respond to a notice of breach. As long as you respond in time and have a way to pay any missed payments then this will be resolved, and no further action will be taken.
However, if your IP doesn’t hear from you then they might cancel your IVA and even take further action such as applying to make you bankrupt.
If you’re finding it hard to keep up with your IVA payment plan it’s important to let your IP know as they might be able to look into other options for you. To find out more, Citizens Advice have a helpful piece on if you’re struggling with your IVA payments.
Can I cancel an IVA?
Yes, you can cancel an IVA at any point of your agreement. If your circumstances change or you would rather enter another debt solution, then you cancelling your IVA is an option. Citizens Advice has a helpful guide that talks in more detail about if your circumstances change during your IVA.
However, cancelling an IVA is an important decision and it’s best to discuss things with your Insolvency Practitioner (IP) first. This is so that you fully understand what this means, and any consequences involved. If you’re concerned about repayments, then the IP may even be able to speak with your creditors and come to a new agreement.
Can I pay off an IVA early?
Yes, it is possible to pay off an IVA early by offering your creditors a lump sum of the outstanding amount. This money could come from a sudden unexpected change in circumstances that has resulted in additional income, such as receiving inheritance or a redundancy package.
Before using this money to pay off an IVA early, it’s important to think about whether this is the right decision for you and your situation. If you’re unsure what to do, you can seek independent advice from trusted organisations like StepChange.
How long does an IVA affect your credit file?
If you get an individual voluntary arrangement, this will be noted on your credit report; however, any debts included in your IVA could still appear separately. In turn, your credit score will go down which may impact your ability to borrow money in the future.
An IVA will stay on your credit report for six years from the date it was approved. Should you decide to pay off your IVA early, it will be marked as ‘complete’ but will remain visible for the remainder of the six-year period, at which point it will be removed.
As lenders focus more on recent credit history, your credit score should start to improve over time as your IVA ages but could still impact your ability to borrow money. Once the six-year period has ended, the record will be updated and removed.
What happens at the end of an IVA?
Towards the end of your IVA, your Insolvency Practitioner (IP) will check that all the necessary payments have been made and that you’ve followed any other obligations according to the agreement.
Once this is approved and you’ve made your final payment, you will receive an IVA completion certificate confirming that you’ve successfully completed your IVA, and that the debts have been cleared.
You can then send a copy of this certificate to the three UK credit reference agencies (Experian, Equifax, and TransUnion) so that they can make sure your credit file is updated.
Your IP will also get in touch with your creditors and the Insolvency Service to let them know. It can take up to three months after the end of your IVA for you name to be removed from the Insolvency Register. You can check that this has been done by visiting the Insolvency Service website.
It’s worth noting that there are some situations in which you might not complete your IVA according to the original timeline – for instance, if you had a payment break or additional months were added to your IVA.
If you’re unsure about when your IVA is scheduled to end, be sure to speak to your IP who will be able to explain the terms of your arrangement.
Getting further advice on IVAs
At Lowell, our customers are our top priority, and we want to support you however possible, including if you’d like to seek advice on IVAs.
If you’re feeling concerned about your repayment plan, we may not be able to provide direct IVA help and advice ourselves, but we can put you in touch with approved organisations who can help you work out your next steps. All you need to do is get in touch with our friendly team who are trained to be understanding of your situation.
To find out more information about debt and how you can become debt-free with Lowell, you can find more helpful guides and articles on the Debt Guidance Hub.
First published: 25th May, 2023
Updated: 31st October, 2024