An Individual Voluntary Arrangement can provide a structured way to deal with qualifying debts, but it is not automatically suitable for everyone.
IVA eligibility depends on your total debt, the types of debt you have, your income, your essential living costs and whether your creditors are willing to accept the proposed arrangement. You must also be able to maintain the agreed payments or provide a suitable lump sum.
Before applying, it is important to understand the IVA criteria, the checks involved and the potential disadvantages. You can also read more general IVA information and how an IVA works before deciding whether to proceed.
What Is an IVA?
An Individual Voluntary Arrangement is a formal agreement between you and your creditors. It allows you to repay an affordable amount towards qualifying debts, usually through regular payments over a fixed period.
Your arrangement must be prepared and supervised by a licensed insolvency practitioner. Once creditors approve the proposal, it becomes legally binding on the creditors included in it.
An IVA may provide:
- One regular payment based on affordability
- Protection from further recovery action by included creditors
- A freeze on additional interest and charges on included debts
- The write-off of remaining qualifying debt after successful completion
IVAs are available in England, Wales and Northern Ireland. Scotland has different formal debt solutions.
IVA Criteria: Who Qualifies for an IVA?
There is no single checklist that guarantees approval. However, you will normally need to meet several practical IVA eligibility requirements.
You may be considered for an IVA if:
- You cannot repay your debts in full within a reasonable period
- You have more than one unsecured debt or creditor
- Your qualifying unsecured debts are usually at least £6,000
- You have a regular income or access to a suitable lump sum
- You have money available after paying reasonable household expenses
- You live in England, Wales or Northern Ireland
- An IVA is likely to provide a better outcome for creditors than an alternative such as bankruptcy
- You are willing to provide accurate information and follow the terms of the arrangement
Your circumstances will be assessed individually. Meeting these points does not guarantee that an IVA will be accepted, as your creditors must still approve the proposal.
You can complete an initial IVA eligibility check to find out whether an arrangement could be suitable.
Is there a Minimum Amount of Debt I Need to Qualify for an IVA?
There is no statutory minimum debt written into the law governing IVAs. However, IVA providers usually apply minimum thresholds because an arrangement must be practical and provide a reasonable return to creditors after costs.
At My Debt Plan, people applying for an IVA will generally need at least £6,000 of qualifying unsecured debt and more than one creditor.
The amount you owe is not considered on its own. An insolvency practitioner will also look at:
- How many creditors you have
- The type of debts involved
- How much you can afford to contribute
- Whether your financial circumstances are likely to remain stable
- Whether another debt solution may be more appropriate
Someone with less debt and very little spare income might be better suited to another solution. Someone with a higher debt balance and an affordable monthly contribution may be more likely to meet the practical criteria for an IVA.
What Types of Debt Can Be Included in an IVA?
An IVA is mainly used for unsecured debts. These are debts that are not directly secured against an asset such as your home.
Qualifying debts may include:
- Credit card balances
- Personal loans
- Overdrafts
- Store cards and catalogue debts
- Payday loans
- Council Tax arrears
- Utility arrears
- HMRC debts
- Mortgage shortfalls after a property has been sold
Certain debts cannot normally be cleared through an IVA. These include:
- Student loans
- Magistrates’ court fines
- Child maintenance or Child Support arrears
- Social Fund loans
- TV Licence arrears
- Certain types of car finance
Mortgages, secured loans and other secured borrowing are not normally included in an IVA unless the secured creditor agrees. Rent and mortgage arrears may also need to be dealt with separately.
Fraud-related debts can be complicated and should be checked individually by the insolvency practitioner. They should not be described as automatically included or automatically excluded without considering the nature of the debt and the wording of the IVA proposal.
Read more about which debts can be included in an IVA before applying.
What Checks Are Done When Looking at an IVA?
An IVA must be based on an accurate picture of your finances. Your provider and insolvency practitioner will therefore need to verify the information you supply.
The checks may cover:
- Your identity and current address
- Your income from employment, self-employment, pensions or benefits
- Your bank statements
- Your regular household spending
- Your creditor balances and account details
- Your property, vehicle, savings and other assets
- Any joint debts or shared household bills
- Recent borrowing or unusual financial transactions
- Previous insolvency arrangements
You may be asked to provide documents such as payslips, benefit statements, bank statements, creditor letters and a mortgage statement.
Your spending will also be reviewed to establish what you can reasonably afford. Essential costs should be considered before an IVA contribution is proposed. These may include housing, food, utilities, travel, clothing, childcare and medical expenses.
Our IVA living expenses guide explains how everyday costs can be considered when calculating an affordable payment.
It is important to provide complete and honest information. Leaving out a debt, asset or source of income could delay the application or cause problems after the IVA has started.
What Is the IVA Process?
The precise process can vary, but applying for an IVA will normally involve the following stages.
- Reviewing Your Debts
A debt adviser will review your income, expenses, assets and debts. They should also explain any suitable alternatives so that you can make an informed decision.
- Preparing Your Proposal
If an IVA appears appropriate, a licensed insolvency practitioner will prepare a formal proposal. It will set out what you can afford to contribute and how the arrangement will operate.
- Sending the Proposal to Creditors
Your creditors are given the opportunity to vote on the proposal. They may accept it, reject it or request changes.
For an IVA to be approved, creditors representing at least 75% by value of those who vote must agree. A large creditor can therefore have significant influence over the outcome.
- Starting the Arrangement
Once accepted, the IVA becomes legally binding on the included creditors. You must then make the agreed payments and follow all other terms.
- Completing Regular Reviews
Your income and spending will normally be reviewed during the IVA. Your payments could change if your circumstances change significantly.
- Completing the IVA
After you meet all the agreed terms, your supervisor will close the arrangement and issue a completion certificate. Remaining qualifying debts included in the IVA are then written off.
Is It Hard to Get an IVA?
An IVA is not designed to be deliberately difficult to obtain, but approval is not automatic.
Your proposal must be:
- Affordable enough for you to maintain
- Fair to your creditors
- Based on accurate financial information
- More beneficial to creditors than the likely alternative
- Approved by the required proportion of voting creditors
An application may be rejected if creditors believe the proposed payments are too low, your budget is unrealistic or another solution would provide a better return.
Creditors may also request modifications. For example, they might ask for a higher payment, a longer term or additional conditions. You should understand and agree to any changes before accepting them.
How Does Owning a Home Affect IVA Eligibility?
Owning a home does not automatically prevent you from qualifying for an IVA.
Under the current IVA Protocol, you will not normally be required to sell your family home or release equity from it to fund the arrangement.
A protocol IVA will generally last:
- 60 months if your individual beneficial interest in the family home is less than £10,000
- 72 months if your individual beneficial interest is £10,000 or more
Beneficial interest is calculated using 85% of the property’s value and then subtracting secured borrowing, such as the outstanding mortgage.
If you jointly own the property, your individual share of the beneficial interest is considered.
A standard protocol IVA may not be appropriate if you have very high equity, own more than one property or have an interest in a buy-to-let property. A bespoke IVA or another debt solution may need to be considered.
Will I Be Debt-Free After an IVA?
Successfully completing an IVA can clear the qualifying debts included in the arrangement. Once the completion process is finished, you should no longer owe the unpaid balance of those included debts.
However, you will not necessarily be free from every financial commitment. You must continue paying:
- Debts that were excluded from the IVA
- Secured borrowing such as your mortgage
- New debts taken out after the IVA began
- Ongoing household bills
- Any obligations that cannot legally be written off
Your IVA does not finish simply because you have made what you believe is the final payment. Your supervisor must complete the necessary checks and issue your completion certificate.
Our article on what happens at the end of an IVA explains the final stages in more detail.
What Are the Disadvantages of Having an IVA?
An IVA can provide meaningful relief, but it is a serious financial commitment with potential disadvantages.
These include:
- Your IVA will affect your credit record
- Your details will be placed on the Individual Insolvency Register
- You will need to follow an agreed household budget
- Your income and expenses will be reviewed regularly
- You may need permission before taking out further credit
- Fees will be deducted from the money paid into the arrangement
- Homeowners may need to agree to property-related terms
- Some jobs or professional memberships could be affected
- The IVA could fail if you do not follow its terms
An IVA is normally recorded on your credit file for six years from its start date. Your IVA will be recorded on the public Individual Insolvency Register while it is active. The record is usually removed three months after the Insolvency Service receives notice that the IVA has been completed, terminated or revoked.
You can learn more about how an IVA may affect you and read our explanation of the IVA Insolvency Register.
IVA fees should be clearly explained before you agree to proceed. They are normally taken from the payments made into the arrangement rather than charged as an additional monthly bill. Further information is available on our IVA costs and fees page.
What Happens If I No Longer Qualify After Applying?
Your circumstances might change while your proposal is being prepared. For example, you could lose income, face higher essential expenses or find that your debt total is different from the amount originally estimated.
This does not always mean you have no options. Your adviser may need to:
- Recalculate your affordable contribution
- Amend the proposal
- Discuss a lump-sum arrangement
- Consider a different debt solution
If an IVA starts but later becomes unaffordable, contact your supervisor immediately. Do not simply stop paying without explaining the situation. Depending on the terms, payment breaks, reduced payments or other changes may be considered.
An IVA that cannot be rescued may be terminated. Our guide to a failed IVA and what happens next explains the possible consequences.
How Can I Find Out Whether I Qualify for an IVA?
An online calculator can provide an initial indication, but it cannot confirm your IVA eligibility on its own. A full assessment is needed before a recommendation can be made.
Have the following information ready:
- Your approximate balance with each creditor
- Your monthly take-home income
- Your rent or mortgage payment
- Your household bills and essential spending
- Details of property, vehicles and savings
- Information about any missed payments or legal action
You should be given enough IVA information to understand both the advantages and disadvantages, as well as any alternatives available to you.
What Should I Do Now?
The next step is to have your finances assessed rather than assuming you will or will not be eligible.
At My Debt Plan, we can review your debts, income and household costs, explain the available options and help you understand whether an IVA is suitable for your circumstances.
Get debt help online or speak to our team for a confidential conversation on 0161 464 0870.
