Tag: IVA disadvantages

This page provides general information only and should not be considered financial advice. If you are struggling with debt, we recommend speaking to a qualified debt adviser or Insolvency Practitioner who can assess your individual circumstances.

If you are looking to apply for an IVA (Individual Voluntary Arrangement), understanding the process is the first step towards taking control of your finances. An IVA is a formal debt solution that allows you to make affordable monthly payments over a fixed period, typically five or six years. At the end of the arrangement, any remaining balances are written off and you become debt free. This guide explains what an IVA is, how the application process works, and what you need to know before getting started.

What is an IVA and how does it help with debt?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors. It provides a structured way to repay some or all of what you owe over a fixed period, usually five years. You make regular monthly payments based on what you can realistically afford, and your creditors agree to write off the remainder once the arrangement is complete.

Once an IVA is in place, your creditors cannot take further action to recover money from you, which means you are protected from bailiff enforcement. Interest and charges on the debts included in your IVA are also frozen. There are several benefits of an IVA that make it worth considering if you are dealing with unmanageable debt.

At the end of the IVA, your debts are considered settled and your creditors cannot chase you for the remaining balance.

How does the IVA process work?

When you apply for an IVA, you will work with a licensed Insolvency Practitioner (IP) who manages the entire process. They start by carrying out a thorough assessment of your finances. Once they have calculated your disposable income and what you can realistically afford to repay (usually over five years), they help you draft a proposal for your creditors.

This proposal sets out a plan to repay a percentage of your debts through monthly instalments. Your creditors then vote on whether to accept the terms. If at least 75% (by value) of voting creditors agree, the IVA is approved and becomes legally binding on all parties, including any creditors who voted against it.

You then make a single monthly payment to your Insolvency Practitioner, who distributes the funds to your creditors on your behalf. This is far simpler than juggling multiple debts with different payment dates. The IP’s fees are built into your monthly payment and agreed with creditors at the outset, so there are no hidden costs.

During the IVA, certain restrictions apply. For example, you cannot borrow more than £500 without your IP’s permission. You must also keep them informed of any changes to your circumstances, as your monthly payment could be adjusted up or down accordingly. If you are wondering whether an IVA might affect your ability to buy a home in the future, you can read more about getting a mortgage with an IVA.

As long as you keep up with your repayments, the IVA will end after the agreed term and the remaining debt is written off. Missing payments can lead to an extension, so it is important to communicate with your IP if you run into difficulties. You can learn more about the implications of an IVA before making a decision.

What debts can be included in an IVA?

Most unsecured debts can be included in an IVA. For a detailed breakdown, see our guide on what debts can be included in an IVA. Common examples include:

• Personal loans (including payday loans)
• Credit cards and store cards
• Overdrafts
• Utility bill arrears
• Council tax arrears
• Income tax and National Insurance arrears
• Catalogue and buy-now-pay-later debts

Some debts cannot be included in an IVA. These typically include:

• Student loans
• Child maintenance arrears
• TV licence arrears
• Magistrates’ court fines
• Social fund loans
• Secured debts such as mortgages

How do you apply for an IVA?

The first step when considering an IVA is to seek guidance from a qualified professional. While an IVA can be an effective way to deal with unmanageable debt, it is not the right solution for everyone. Your personal circumstances, income, and the types of debt you hold all play a role in determining the best approach. To understand the minimum requirements, read our guide on how much debt you need for an IVA.

If an IVA looks suitable, the next step is to contact a licensed Insolvency Practitioner. Only an authorised IP can formally set up an IVA. They will review your finances in detail and work with you to build a proposal for your creditors.

What is the IVA application process step by step?

Step 1: Assessing your finances

Your Insolvency Practitioner begins by reviewing your full financial picture. They will need to see bank statements, payslips, details of your outgoings, and information about any assets you hold. This allows them to work out your disposable income and determine what you can afford to pay each month.

Step 2: Drafting your proposal

Using the information you have provided, your IP prepares a formal proposal for your creditors. This document outlines how much you will repay each month, the total duration of the arrangement, and what happens with any assets. If you own a property, you will not normally be required to sell it, although there may be a requirement to release equity towards the end of the IVA term if you are able to do so.

Your IP also prepares a detailed report for creditors explaining your financial position and why an IVA is in the best interests of all parties.

Step 3: The creditors’ vote

Once the proposal is ready, your IP contacts your creditors and gives them the opportunity to review the terms. This is done through a decision procedure (which replaced the old creditors’ meeting process). At least 75% of voting creditors by debt value must approve the IVA for it to go ahead. If approved, the arrangement is legally binding on all creditors, including those who voted against it.

Creditors may request modifications to the terms as a condition of their approval. You will be asked to agree to any changes before the IVA proceeds. You are not obligated to accept modifications, but rejecting them could mean the IVA is not approved.

The entire application process typically takes around three to four weeks from start to finish.

Step 4: Making your payments

Once approved, you start making your monthly payment to the IP, who then distributes funds to your creditors. You continue this for the agreed term, and at the end, any outstanding debt is written off.

Do you qualify for an IVA?

Eligibility for an IVA depends on your individual circumstances, and ultimately your creditors decide whether to approve the arrangement. As a general guide, you typically need to owe at least £5,000 to two or more creditors. You also need to be insolvent, meaning you cannot afford to keep up with your current debt repayments despite having a regular income.

Meeting these criteria does not guarantee approval, but it means an application may be worth exploring. Your Insolvency Practitioner will discuss all available options with you, including alternatives, to make sure you understand the full picture before proceeding. For a more detailed look at eligibility, read our guide on how much debt you need for an IVA in the UK.

What happens if your IVA is rejected?

If your IVA is rejected, your financial situation remains as it was before you applied. You still owe the same debts, and if you paused contractual repayments during the application, additional charges may have built up.

It is possible to submit a new application, but this is generally only worthwhile if your circumstances have changed. When a proposal is rejected, creditors usually provide reasons, which can be helpful if you are considering trying again. There is no legal limit on how many times you can apply, and an IVA can still be approved in the future even if a previous application was turned down.

If an IVA is not the right fit, there are other debt solutions worth exploring.

Alternative debt solutions to consider

If an IVA is not suitable or your application is rejected, several other options may be available depending on your circumstances.

Bankruptcy

Declaring bankruptcy can provide a fresh start by writing off most of your unsecured debts. Your non-essential assets and disposable income are used to repay as much as possible. You are normally discharged from bankruptcy after 12 months, although income payment obligations can last up to three years. It costs £680 to petition for your own bankruptcy in England and Wales.

Debt Relief Order (DRO)

A Debt Relief Order freezes all your debt repayments and interest for 12 months. It is designed for people with low disposable income, few assets, and debts of £50,000 or less. You apply through an authorised debt adviser, and the application fee is £90. If your financial situation has not improved after 12 months, your debts are written off.

Debt Management Plan (DMP)

A Debt Management Plan is an informal arrangement where you negotiate reduced monthly payments with your creditors. Unlike an IVA, a DMP is not legally binding and you repay your debts in full over a longer period. It can be a good option if you want to avoid the restrictions that come with formal insolvency solutions, and it has less impact on your ability to borrow in the future.

Need more information?

If you are struggling with debts and want to understand your options, Swift Debt Help provides general information on IVAs and other debt solutions to help you get started. For reasons an IVA could be worth it, browse our resources or use the form below to request a debt assessment. A qualified adviser can then review your situation and explain the options available to you.

The information on this page is for general guidance only. It does not constitute financial advice. Always seek professional guidance before making decisions about debt solutions.