An IVA (Individual Voluntary Arrangement) is a formal and legally binding agreement between you and your creditors to repay all or part of your debts over a period of time at an affordable rate. It is set up and managed by an Insolvency Practitioner (IP).

An IP will assess your financial situation and propose a repayment plan to your creditors. If the majority agree, you make a single monthly payment which is distributed among your creditors. Interest and fees are frozen, and after the agreed period, usually five or six years, provided you comply with all your obligations under the terms of the Arrangement, any remaining debt is written off.

To be eligible for an IVA, you must usually:

• Have at least £6,000 of unsecured debt.
• Owe money to two or more creditors.
• Live in England, Wales, or Northern Ireland.
• Have a steady income and be able to make a monthly payment towards your debts.

Most unsecured debts can be included, such as:

• Credit cards
• Personal loans
• Overdrafts
• Utility bill arrears
• Council tax arrears
• Income tax and National Insurance arrears
• Payday loans

Certain debts cannot be included in an IVA, such as:

• Mortgages (other than a shortfall on a property you no longer own)
• Other secured loans (other than a shortfall on a property you no longer own)
• Hire purchase agreements (unless the vehicle/goods have been returned)
• Debts incurred through fraud
• Court fines
• Student loans
• Child support arrears

An IVA will be recorded on your credit file for six years from the start date or until 1 year after completion, whichever is the later. This will make obtaining credit more challenging during this period.

An IVA affects only the person entering into it. However, if you have joint debts, your partner will remain responsible for the debt. The IP will assess household income and expenditure, but your partner’s credit rating will not be directly affected.

Yes, there are two ways that your IVA could be completed early. If you receive sufficient funds to pay the debts, costs and fees of the IVA in full your IVA can be completed early. Alternatively, it may be possible to make a full and final settlement offer to your creditors. This would usually be a lump sum offer from a friend or family member. Your IP would assess whether the offer was fair and would give your creditors the opportunity to vote on whether to accept the offer or not. This must be agreed upon by your creditors.

You will not be required to sell your home, but you may need to release equity if possible. This will be assessed as part of your IVA agreement.

While an IVA is on your credit file, obtaining a mortgage will be challenging. Some specialist lenders might consider you, but it is usually better to wait until the IVA is removed from your credit file six years from the start date or until 1 year after completion, whichever is the later.

Fees include:

• Nominee’s Fee: For setting up the IVA.
• Supervisor’s Fee: For ongoing management of the IVA.
• Disbursements/Expenses: Costs for third-party services required during the IVA.

While in an IVA, you will face spending restrictions and have to live within a budget. You may need to inform certain employers about your IVA, and it could impact your ability to obtain credit.

You retain control of your possessions. Essential household items are protected, and you can exclude other items with your IP’s advice. You must declare all assets to help determine what you can afford to pay.

If you miss payments or your circumstances change drastically, your IVA may fail. If the IVA fails, then your creditors are free to resume normal collections activity and apply interest and charges. As there are fees payable not all of the payments you have made will have been paid to your creditors. One or more of your creditors, or in certain circumstances your IP could make you bankrupt. It’s crucial to keep your IP informed of any changes to avoid this.

To cancel an IVA, you must contact your IP. They will issue a notice of termination, and you will need to arrange repayment of your debts directly with your creditors. This could lead to bankruptcy if not managed properly.