Understanding Individual Voluntary Arrangements (IVAs) as a Debtor

Understanding Individual Voluntary Arrangements (IVAs) as a Debtor

In the realm of financial challenges, individuals often find themselves facing a maze of options when seeking to manage their debts. One such avenue is an Individual Voluntary Arrangement (IVA), a formal agreement between a debtor and their creditors. IVAs offer a structured path towards managing debts, providing a lifeline to those struggling with financial burdens. In this blog post, we’ll delve into what an IVA entails for debtors, shedding light on its intricacies and benefits.

What is an IVA?

An Individual Voluntary Arrangement, abbreviated as IVA, is a legally binding agreement between a debtor and their creditors. It offers a structured repayment plan, allowing the debtor to repay their debts over a fixed period, typically spanning five to six years. IVAs are supervised by a licensed insolvency practitioner (IP), who oversees the arrangement and ensures compliance with its terms.

How Does an IVA Work?

  1. Assessment and Proposal: The process begins with an assessment of the debtor’s financial situation by an insolvency practitioner. Based on this assessment, a proposal outlining the repayment terms is drafted and presented to the creditors.
  2. Creditor Consideration: Creditors are provided with the proposal and given the opportunity to vote on its acceptance. For an IVA to be approved, it must garner support from creditors representing at least 75% of the total debt value.
  3. Implementation: Upon approval, the IVA becomes legally binding, and the debtor is required to adhere to its terms. This typically involves making regular payments to the insolvency practitioner, who then distributes the funds among the creditors as per the agreed-upon terms.
  4. Completion: Once the agreed-upon term elapses, and all payments have been made, the debtor is considered free from the debts included in the arrangement. Any remaining balances are typically written off, providing a fresh start for the individual.

Benefits of an IVA for Debtors:

  1. Single Affordable Payment: IVAs consolidate multiple debts into a single manageable payment, easing the burden on the debtor and simplifying financial management.
  2. Legal Protection: Upon approval, an IVA provides legal protection against further action by creditors, including legal proceedings and enforcement actions such as repossession or wage garnishment.
  3. Debt Write-Off: At the conclusion of the arrangement, any remaining balances on included debts are typically discharged, offering a clean slate for the debtor.
  4. Avoidance of Bankruptcy: IVAs offer an alternative to bankruptcy, allowing debtors to address their financial difficulties while avoiding the severe and long-term consequences associated with bankruptcy.
  5. Control and Flexibility: Debtors retain a degree of control and flexibility throughout the IVA, with the ability to negotiate terms and adjust payments based on changing circumstances, subject to approval by the insolvency practitioner.

Considerations Before Entering an IVA:

While IVAs offer significant benefits, they are not without considerations. Debtors should carefully assess their financial situation and consult with a qualified professional before proceeding. Important considerations include:

  1. Affordability: Debtors must ensure they can afford the proposed repayment plan throughout its duration. Failure to meet payments could result in the IVA’s failure and subsequent legal action by creditors.
  2. Impact on Credit Rating: Entering into an IVA will have an adverse effect on the debtor’s credit rating, making it more challenging to access credit in the future. However, this impact diminishes over time, particularly upon completion of the arrangement.
  3. Asset Ownership: Debtors may be required to release equity from assets such as property or vehicles as part of the IVA terms. It’s crucial to understand and accept these conditions before proceeding.
  4. Alternative Options: Debtors should explore alternative debt management solutions and consider their suitability before committing to an IVA. These alternatives may include debt management plans, debt consolidation loans, or informal negotiations with creditors.

In conclusion, an Individual Voluntary Arrangement (IVA) presents a viable solution for individuals struggling with unmanageable debts, offering a structured pathway towards financial recovery. By understanding the intricacies of IVAs and seeking professional guidance, debtors can navigate their financial challenges with confidence, ultimately achieving a fresh start and reclaiming control of their financial future.

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