How an IVA Works — Step by Step
An Individual Voluntary Arrangement is a formal, legally binding agreement between you and your creditors. Once approved, it protects you from legal action while you pay what you can afford. Here's the complete process:
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Initial Assessment (Day 1)
You meet with an Insolvency Practitioner (IP) or their team for a free consultation. They review your debts, income, and expenses using the Common Financial Statement. If suitable, they'll explain the implications and obtain your consent to proceed.
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Proposal Preparation (Days 2-14)
Your IP drafts a formal proposal to creditors. This document details your financial situation, what you can afford to pay monthly, and how long the IVA will last. The proposal includes IP fees (typically 20-25% of payments) which come from your contributions, not added on top.
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Interim Order (Optional)
If you're facing immediate legal action (bailiffs, court proceedings), your IP can apply for an Interim Order. This provides immediate protection while your proposal is considered.
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Creditors' Meeting (Day 21-28)
Your proposal is sent to all creditors. They have 14 days to vote. The meeting is usually virtual — you don't attend. Critical: You need 75% by debt value to approve. If you owe £20,000 total and one creditor holding £16,000 agrees, that's 80% — approved. Creditors can request modifications (like extending from 5 to 6 years).
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The Protocol Period (Months 1-60/72)
Once approved, you make monthly payments to your IP, who distributes them to creditors after deducting their fees. Payments are reviewed annually — if your income increases significantly (10%+), payments may rise. If it drops, they can be reduced.
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Annual Reviews
Every 12 months, you provide updated income and expenditure details. Your IP can adjust payments accordingly. You must declare any windfalls (inheritance, compensation claims, lottery wins) — these go to creditors in full.
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Property Review (Year 5)
If you're a homeowner, your property equity is assessed in the fifth year. If significant equity exists (typically £5,000+), you may need to remortgage to release funds or extend the IVA by 12 months instead.
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Completion (Month 60-72)
After making all agreed payments, your IP issues a completion certificate. Remaining debt is legally written off. The IVA remains on your credit file for 6 years from the start date, not completion.
Eligibility Criteria
Not everyone qualifies for an IVA. Here are the essential requirements:
Minimum Requirements
- Debt Level: Typically £6,000+ in unsecured debt (though no legal minimum exists)
- Number of Creditors: At least 2 creditors (single creditor IVAs are theoretically possible but rare)
- Residency: You must live in England, Wales, or Northern Ireland (Scotland has different rules)
- Income: Regular income with £80-100+ monthly disposable income after essentials
- Commitment: Ability to maintain payments for 5-6 years
Who IVAs Work Best For
- Homeowners wanting to protect their property
- Employed individuals with steady income
- Self-employed people (though income verification is stricter)
- People with £6,000-£80,000 unsecured debt
- Those facing legal action from creditors
Who Should Avoid IVAs
- People with only priority debts (council tax, child maintenance)
- Those with less than £6,000 debt (fees make it uneconomical)
- Anyone with very irregular income
- People likely to need credit within 6 years
- Certain professionals where insolvency affects licensing (check your professional body)
What Debts Are Included in an IVA?
Understanding which debts can and cannot be included is crucial. You cannot cherry-pick — if a debt can be included, it must be.
✅ Included (Unsecured Debts)
- Credit cards
- Personal loans
- Overdrafts
- Store cards
- Payday loans
- Council tax arrears
- Utility bill arrears
- HMRC debts (income tax, VAT)
- Benefit overpayments
- CCJs (County Court Judgments)
- Catalogue debts
- Debts to friends/family (if documented)
❌ Excluded (Cannot be included)
- Secured debts (mortgages, secured loans)
- Hire purchase (if you keep the goods)
- Student loans
- Child maintenance arrears
- Criminal fines
- TV licence arrears
- Social fund loans
- Debts incurred through fraud
The True Cost of an IVA
IVA providers often obscure the real costs. Here's complete transparency:
How Payments Work
Your monthly payment is based on disposable income — what's left after essential living costs. The Insolvency Practitioner's fees come FROM these payments, not in addition to them.
Real-World Example
- Total Debt: £25,000
- Monthly Payment: £180
- Duration: 60 months (5 years)
- Total Paid: £180 × 60 = £10,800
- IP Fees (20%): ~£2,160
- Creditors Receive: ~£8,640
- Debt Written Off: £25,000 - £8,640 = £16,360 (65%)
Insolvency Practitioner Fees
IPs typically charge:
- Nominee Fee: £1,000-1,500 (for setting up the IVA)
- Supervisor Fee: 15-20% of monthly payments
- Disbursements: Additional costs for specific actions
These fees are why IVAs under £6,000 rarely work — the fees consume too much of the payments.
Hidden Costs
- Equity Release: Homeowners may need to remortgage in year 5
- Extended Terms: If you can't release equity, add 12 months of payments
- Lost Windfalls: Any unexpected money goes to creditors
- Career Impact: Some professions face restrictions
Key Advantages of an IVA
🛡️ Legal Protection
Once approved, creditors cannot contact you, take legal action, or send bailiffs. This "breathing space" is legally binding — creditors who violate it face penalties.
❄️ Frozen Interest
All interest and charges stop immediately upon approval. Your debt won't grow, making repayment realistic. Without this, high-interest debts can be impossible to clear.
💰 Significant Write-Off
Typically 50-70% of total debt is written off at completion. This is legally binding — creditors cannot pursue written-off amounts later.
🏠 Keep Your Home
Unlike bankruptcy, you usually keep your home. While equity may be reviewed in year 5, forced sales are rare. Most IVAs protect homeowners effectively.
📅 Fixed End Date
You know exactly when you'll be debt-free. After 5-6 years, it's over — no matter how much was written off. This certainty helps mental health significantly.
💳 One Payment
Replace multiple creditor payments with one affordable monthly amount. Your IP handles distribution — you never deal with creditors again.
Key Disadvantages — The Honest Truth
Many sites sugarcoat IVA downsides. Here's what you really need to know:
📉 Credit File Damage — 6 Years
An IVA appears on your credit file for 6 years from the start date. Your score will plummet immediately. Getting any credit — mortgages, car finance, even mobile contracts — becomes extremely difficult. Some providers may offer "bad credit" products at punitive rates.
📢 Public Record
Your name appears on the public Insolvency Register, searchable by anyone. While employers rarely check routinely, it's there if they look. The entry includes your address and the IP's details. It's removed 3 months after completion.
💼 Career Restrictions
Certain professions face serious implications:
- Financial Services: FCA-regulated roles often prohibited
- Accountancy: May affect professional membership
- Law: Solicitors must notify the SRA
- Company Directors: No formal ban, but lenders may refuse business credit
- Police/Military: May affect security clearance
Check your employment contract for insolvency clauses.
🚫 Credit Restrictions
You cannot obtain credit over £500 without declaring the IVA. This includes:
- Credit cards (all will be cancelled)
- Loans (even payday loans)
- Hire purchase agreements
- Some utility contracts require deposits
💸 Windfall Clause
Any unexpected money must go to creditors:
- Inheritance (even years later if expected during IVA)
- PPI refunds
- Compensation claims
- Lottery wins (yes, really)
- Work bonuses over a threshold
🏠 Home Equity Review
In year 5, homeowners face equity assessment. If you have significant equity (£5,000+), you must either:
- Remortgage to release funds (difficult with damaged credit)
- Extend the IVA by 12 months
- Have someone else buy out the equity share
⚠️ High Failure Rate
Approximately 30% of IVAs fail, usually due to:
- Missed payments (job loss, illness)
- Inability to maintain payments after review
- Non-disclosure of assets or income
- Creditor objections to variations
Failed IVAs often lead to bankruptcy — a worse outcome than starting with bankruptcy.
IVA vs Other Debt Solutions
An IVA isn't universally best. Here's an honest comparison:
| Feature | IVA | DMP | Bankruptcy | Consolidation |
|---|---|---|---|---|
| Debt Written Off | 50-70% | None | Most debts | None |
| Duration | 5-6 years | Varies (5-10+ years) | 12 months | Loan term |
| Legal Protection | Yes | No | Yes | No |
| Credit Impact | 6 years | Varies | 6 years | Minimal |
| Keep Home | Usually | Yes | At risk | Yes |
| Public Record | Yes | No | Yes | No |
| Monthly Cost | Affordable | Flexible | IPA if surplus | Fixed |
| Minimum Debt | ~£6,000 | Any | ~£5,000 | Varies |
Learn more about alternatives:
- Debt Management Plans — Better if you can repay in full but need breathing space
- Bankruptcy — Faster resolution but with severe asset implications
- Consolidation Loans — Only viable with good credit
The Verdict — Is an IVA Right for You?
✅ An IVA IS Right for You If:
- You owe £6,000+ in unsecured debt
- You have stable income with £80+ monthly disposable
- You'll never repay debts in full at current payments
- You want legal protection from creditors
- You're a homeowner wanting to protect your property
- You can commit to 5-6 years of payments
- Your job doesn't prohibit insolvency
- You accept the credit implications
❌ An IVA is NOT Right for You If:
- Your debt is under £6,000
- You have no regular income
- You could repay debts within 3-4 years
- You work in restricted professions
- You'll need credit soon (mortgage, car)
- Your income is very irregular
- You can't commit to 5-6 years
- A DMP would clear debts in similar timeframe
Ready to Check Your Eligibility?
Use our free calculator to see if you qualify for an IVA and estimate your write-off amount.
Frequently Asked Questions
Can I get an IVA with bad credit?
Yes, you can get an IVA with bad credit. In fact, most people entering an IVA already have damaged credit from missed payments. Your credit score doesn't determine IVA eligibility — your ability to make regular payments and having sufficient debt (typically £6,000+) are what matter. The IVA will further damage your credit for 6 years, but it provides a path to becoming debt-free.
Do I need a certain amount of debt for an IVA?
While there's no legal minimum, most Insolvency Practitioners require at least £6,000 in unsecured debt from 2 or more creditors. Below this threshold, the fees make an IVA uneconomical — you'd pay more in fees than debt relief received. If you have less debt, consider a Debt Management Plan instead.
Will my employer find out about my IVA?
In most cases, your employer won't be informed directly about your IVA. However, it is recorded on the public Insolvency Register which anyone can search. Some professions (financial services, law, accountancy) require disclosure, and some employment contracts have insolvency clauses requiring you to inform your employer. Check your contract carefully. See our guide: Does an IVA Affect My Job?
What happens if I miss an IVA payment?
Missing one payment isn't automatically fatal to your IVA. Contact your Insolvency Practitioner immediately — they can often arrange a payment holiday or variation. You're typically allowed to miss up to 3 months of payments over the IVA term, but these must be made up by extending the arrangement. However, if you miss 3+ consecutive months without agreement, your IVA may fail, potentially leading to bankruptcy if creditors pursue this.
Can I keep my car in an IVA?
Usually yes, if it's essential for work or family needs and worth less than £5,000. Cars on HP/PCP finance aren't included in the IVA — you continue those payments separately. High-value vehicles may need to be downgraded with the difference going to creditors. See our detailed guide: Can I Keep My Car in an IVA?
What happens after an IVA ends?
Once you complete all payments, you receive a completion certificate from your Insolvency Practitioner. Remaining debt is legally written off — creditors cannot pursue it. The IVA stays on your credit file for 6 years from the start date, not the end. You're removed from the Insolvency Register 3 months after completion. You're then free to rebuild your credit, though it takes time to recover fully.
Can I pay off an IVA early?
Yes, you can settle an IVA early with a lump sum, but creditors must agree. They typically accept 75-85% of remaining payments as a lump sum settlement. For example, if you have £10,000 in payments remaining, a £7,500 lump sum might be accepted. This could come from a family member, remortgage (if credit permits), or asset sale. Early settlement doesn't improve the credit file impact — the IVA still shows for 6 years from the start date.
What's the difference between an IVA and bankruptcy?
The key differences: IVAs last 5-6 years vs bankruptcy's 12 months. You usually keep your home in an IVA but risk losing it in bankruptcy. IVAs write off 50-70% of debt; bankruptcy writes off most unsecured debts entirely. Both appear on your credit file for 6 years. Bankruptcy has more severe professional restrictions but provides faster resolution. See our comparison: IVA vs Bankruptcy