Individual Voluntary Arrangements (IVA)

IVAs typically write off 70-80% of unsecured debt, though this varies based on your circumstances and creditor agreement. You pay what you can afford over 5-6 years (usually 60 months), with remaining debt written off at completion. For example, £40,000 debt might result in £300 monthly payments (£18,000 total) with £22,000 written off. The exact amount depends on your income, expenses, asset equity, and creditor negotiations. Unlike bankruptcy, you keep assets like your home. Creditors must approve the arrangement (75% by value), and proposals showing higher returns than bankruptcy are more likely to succeed.

IVA eligibility requires: minimum unsecured debts of £6,000 (preferably £10,000+), at least 3 different creditors, regular income from employment/benefits, spare monthly income of £100+ after essential expenses, UK residence or business connections, and ability to maintain payments for 5-6 years. Ideal candidates are homeowners wanting asset protection, employed people with stable income, those facing creditor pressure but can manage reduced payments, and people whose circumstances make bankruptcy unsuitable. Self-employed individuals can apply but face additional scrutiny of income sustainability. Professional people often prefer IVAs to avoid bankruptcy restrictions.

IVAs last 5-6 years with monthly payments but protect assets like your home and allow continued company directorship. Bankruptcy lasts 12 months with most debts written off but risks asset loss and employment restrictions. IVA advantages: keep property, fewer restrictions, lower stigma, creditor protection. IVA disadvantages: longer commitment, higher total cost, less debt write-off, annual reviews, failure risks bankruptcy. Bankruptcy advantages: quicker discharge, maximum debt relief, no monthly payments after income assessment. Bankruptcy disadvantages: asset loss, employment restrictions, higher court fees. Choose IVAs for asset protection and stable income, bankruptcy for quick fresh start with minimal assets.

IVA failure occurs when you miss payments (typically 3+ months), breach terms, or creditors reject variations. Consequences include: automatic bankruptcy in some cases, return to original debt position, creditor action resumption, loss of payments already made, and additional costs. Common failure reasons: job loss, reduced income, unrealistic budgeting, life changes, or creditor inflexibility. Options after failure: negotiate payment holiday, request IVA variation, propose new arrangement, consider bankruptcy voluntarily, or return to individual creditor negotiations. Prevention involves realistic budgeting, early communication about problems, professional support throughout, and emergency fund maintenance where possible.

While not legally required, solicitor advice is valuable for IVA applications to ensure: optimal proposal terms, maximum debt write-off, asset protection strategies, creditor negotiation expertise, alternative option assessment, and protection from unsuitable arrangements. IVAs require licensed Insolvency Practitioners as nominees/supervisors, but solicitors can help prepare stronger proposals and negotiate better terms. Many people use IVA companies directly, but complex cases benefit from legal advice, especially involving: high-value assets, disputed debts, multiple properties, business interests, or professional licensing concerns. Solicitors ensure proposals meet your needs rather than just creditor acceptance.

Credit during an IVA requires supervisor approval for amounts over £500, and most credit applications will be refused by mainstream lenders. Permitted credit may include: emergency car finance for employment, essential household items on hire purchase, mobile phone contracts, and small payday loans (though inadvisable). You should avoid: credit cards, personal loans, non-essential purchases on credit, and guarantor loans. Unauthorized credit breaches IVA terms and risks failure. Focus on: budgeting within the arrangement, building emergency savings, using debit cards, and preparing for post-IVA credit rebuilding. Some specialist lenders offer products to IVA customers, but these typically have poor terms.

IVA monthly payments cover: agreed creditor payments (usually 85% of payment), Insolvency Practitioner fees (typically 15%), and arrangement completion costs. Payments are calculated from your surplus income after essential expenses including: rent/mortgage, council tax, utilities, food, transport, clothing, insurance, and reasonable lifestyle costs. The payment amount is fixed for 12 months then reviewed annually based on income changes. Windfalls, bonuses, and pay rises may increase payments or reduce the arrangement term. Payments continue for 60 months typically, after which remaining debt is written off. All payments go through the supervisor who distributes funds to creditors.

Mortgage availability after IVA completion varies by lender: specialist lenders may consider applications immediately after completion, mainstream lenders typically want 12-24 months post-completion, and prime lenders may require 3+ years with perfect record. Requirements usually include: completion certificate, 25-40% deposit, higher interest rates, stable employment, good post-IVA credit history, and affordability demonstration. Some lenders consider applications in the final IVA year. Mortgage brokers specializing in adverse credit can help find suitable products and improve application chances. Start rebuilding credit immediately after completion with basic accounts and small credit products to demonstrate financial rehabilitation.