Find out more about how an Individual Voluntary Arrangement (IVA) works and which debts it covers. Then talk to a free debt adviser about whether it’s the best way to pay off or clear your debts.
Speak to a free debt adviser
Use our Debt adviser locator tool to find free and confidential debt advice online, over the phone or near to where you live.
A debt adviser will:
- treat everything you say in confidence
- never judge you or make you feel bad about your situation
- suggest ways of dealing with debts that you might not know about
- check you’ve applied for all the benefits and entitlements available to you.
Three quarters of people who get debt advice feel more in control of their finances afterwards.
Which debts can you pay off with an IVA?
You can use an IVA to help pay off many common debts, including (but not exclusively):
- overdrafts
- personal loans
- catalogue debts
- Council Tax arrears
- hire purchase debts
- mortgage shortfalls
- credit and store cards
- money you owe to HMRC, such as Income Tax or National Insurance contributions.
Which debts can’t you pay off with an IVA?
You can’t use an IVA to pay off:
- student loans
- magistrates’ court fines
- certain types of car finance
- Child maintenance or Child Support arrears
- Social Fund loans
- TV Licence arrears.
Mortgage and rent arrears
If you include mortgage and rent arrears, and other secured loans against your property, in an IVA, your creditors have to agree to this. Often, they won’t agree to do so.
Check with a debt adviser what you can and can’t include in an IVA. If you have mortgage or rent arrears, see if there are other debt solutions available to you to deal with these repayments.
Have you missed a payment?
Use our Debt advice locator tool to find free and confidential debt advice online, over the phone or near to where you live.
How an IVA works
An Individual Voluntary Arrangement (IVA) freezes your debts and allows you to pay them back over a set period.
Any money you still owe after this period is then written off.
You can apply for an IVA if you can afford to pay something towards your debts but not necessarily the full amount your creditors want. Typically, this is around £70 a month after you’ve taken care of essential costs, but will vary between IVA providers.
You’ll need to show you have a regular long-term income, as the repayments will usually cover a period over 60 or 72 months (five to six years).
If you have a lump sum to pay towards your debts, you might also qualify for an IVA.
if you’re a homeowner, in the second to last year of the IVA, you might be asked to re-mortgage your house and use the extra funds towards repayment. If you do this, the IVA term would then finish a year early or after you’ve re-mortgaged.
The IVA is set up by a qualified professional called an Insolvency Practitioner. They’ll work with you to put together a proposal to take to your creditors for approval.
It very much depends on what your circumstances are as to whether your creditors will agree to the plan. But if at least 75% of your creditors agree to the proposal, an IVA is likely to be approved – even if some creditors disagree.
An IVA is a legally binding agreement between you and the people you owe money to. This means when you’ve signed it, it can be difficult for you or your creditors to back out. And if you do back out, there are likely to be hefty penalties.
How to set up an IVA
You have to set up an IVA through an insolvency practitioner.
There might also be up-front charges to pay before your IVA has been set up. These can differ a lot between IVA providers. You’ll also pay a monthly payment to oversee the IVA.
There are also fees to pay to the insolvency practitioner, which are usually taken from your monthly payments.
It’s always best to get advice from a free debt advice service. They should also be able to recommend an IVA provider for you and help you understand the different fees and charges if you want to choose one yourself.
What if you can’t keep up with payments into an IVA?
If you can’t keep up with payments, the insolvency practitioner can cancel your IVA and apply to make you bankrupt. It’s important to be aware, however, that not all cancelled IVAs lead to bankruptcy – this is purely an option that individual creditors may consider if the IVA fails.
This article is provided by the Money Advice Service.
The content of this Factsheet has been created by and is provided by The Money Advice Service and is produced under licence from them.
Please be aware there are links contained within this factsheet that may take you to external sites, we are not responsible for their content. This is a general advice and information factsheet only and should not be treated as a definitive guide and does not constitute legal or professional advice. We are not a law firm and information is not intended to create a solicitor client relationship. Law Express and The Money Advice Service does not accept any responsibility for any loss which may arise from relying on information contained in this factsheet. This is not a substitute for legal advice and specific and personal legal advice should be taken on any individual matter. If you need more details or information about the matters referred to in this factsheet please seek formal legal or financial advice.
The Money Advice Service is not regulated by the Financial Conduct Authority and the Money Advice Service does not provide a regulated service.
The information and tools that the Money Advice Service provides are generic and should be of general assistance to you in managing your finances. However,
the money advice service cannot recommend specific financial products and always recommends that you seek further information from an independent financial adviser, and/or further information from the providers of specific financial products.
This factsheet is correct at time of going to print. The law set out in this factsheet applies to England and Wales unless otherwise stated.
