How Does the IVA Process Work in the UK?
If you are struggling with unmanageable debt, an Individual Voluntary Arrangement (IVA) could provide a structured and legally binding way to regain control of your finances. An IVA is a formal agreement between you and your creditors that allows you to repay affordable amounts over a fixed period, while often writing off a portion of your unsecured debt at the end of the arrangement.
For many people across the UK, an IVA can offer an alternative to bankruptcy, helping them protect important assets while reducing financial pressure. However, before entering into an IVA, it is important to understand exactly how the process works and what to expect at each stage.
What Is an IVA?
An Individual Voluntary Arrangement is a formal insolvency solution available in England and Wales. It is arranged through a licensed insolvency practitioner, who works with you and your creditors to create a realistic repayment proposal based on your income, expenditure, assets, and overall financial circumstances.
Once approved, the IVA becomes legally binding on all included creditors. This means creditors can no longer take separate legal action against you for the debts included within the arrangement.
IVAs typically deal with unsecured debts such as:
- Credit cards
- Personal loans
- Overdrafts
- Store cards
- Payday loans
- HMRC arrears
Secured debts, such as mortgages, are usually excluded.
Step 1: Initial Financial Assessment
The first stage of the IVA process is a detailed review of your financial position. A licensed insolvency practitioner will assess:
- Your total debts
- Monthly income and expenditure
- Assets and savings
- Property ownership
- Employment status
- Future affordability
This stage is crucial because an IVA must be affordable and sustainable over the long term. The insolvency practitioner will also explain alternative debt solutions, including bankruptcy or debt management plans, to help determine whether an IVA is the most suitable option.
At Purnells Insolvency Practitioners, individuals can arrange a free initial consultation to discuss their circumstances and explore suitable debt solutions.
Step 2: Preparing the IVA Proposal
If an IVA is considered appropriate, the insolvency practitioner will help prepare a formal IVA proposal. This document outlines:
- Your financial circumstances
- Details of your creditors
- Your monthly repayment offer or lump sum contribution
- The proposed duration of the arrangement
- How creditors will be repaid
- Details of assets included or excluded
- Why creditors are likely to receive a better outcome than through bankruptcy
According to guidance provided by Purnells, there are generally two main types of IVA:
- A monthly payment IVA, where regular payments are made over several years
- A lump sum IVA, where a one-off payment is offered, often through family assistance or asset realisation
Before the proposal is submitted, you will have the opportunity to review it carefully and ask questions about anything you do not understand.
Step 3: Creditors’ Meeting and Voting
Once the proposal is complete, it is sent to your creditors for consideration. A formal creditors’ meeting is then arranged by the insolvency practitioner.
During this stage, creditors can:
- Accept the proposal
- Reject the proposal
- Request modifications
For the IVA to be approved, creditors representing at least 75% of the value of the debt that vote must agree to the arrangement.
In many cases, creditors may ask for minor amendments before accepting the IVA, such as increasing contributions if income rises in future years.
Once approved, the IVA becomes legally binding on all included creditors, even those who voted against it or did not vote at all.
Step 4: Making Payments
After approval, the IVA officially begins. Most IVAs last around five years, although the exact duration depends on individual circumstances.
You will usually make one affordable monthly payment, which is distributed among your creditors by the insolvency practitioner acting as the supervisor of the arrangement.
During the IVA, you will typically be expected to:
- Maintain regular payments
- Inform your supervisor of major financial changes
- Submit annual income and expenditure reviews
- Avoid taking further credit without permission
Your insolvency practitioner will monitor the arrangement and communicate with creditors on your behalf throughout the process.
Step 5: Completion of the IVA
If you successfully complete all agreed payments and obligations, any remaining unsecured debt included within the IVA is usually written off.
You will then receive a certificate of completion confirming that the arrangement has ended.
While an IVA will impact your credit file for six years from the start date, many individuals view it as an opportunity to rebuild their financial future in a structured and manageable way.
Is an IVA Right for You?
An IVA is not suitable for everyone, but for many people it can provide valuable protection from creditor pressure while creating a realistic path towards becoming debt-free.
Seeking professional advice is essential before making any decision. A licensed insolvency practitioner can explain the advantages, risks, and alternatives based on your personal circumstances.
For expert advice on IVAs and other insolvency solutions, Purnells Licensed Insolvency Practitioners offer free initial consultations and tailored support for individuals facing financial difficulties.