What is an IVA and how does it work?

What is an IVA?

An individual voluntary arrangement, or IVA, is a formal agreement between you and the people you owe money to, known as creditors. An IVA allows you to make monthly payments over a specified period, based on what is affordable to you until the terms of the IVA are satisfied. Your creditors should also stop charging interest on your debts once you have an IVA in place.

To arrange an IVA, you’ll need to work with a qualified professional known as an insolvency practitioner (IP) who will help you sort out a proposal to send to your creditors for agreement. You can also set up an IVA via charitable organisations like StepChange. There are costs and fees involved with the setting up and management of an IVA, although these can vary.

It’s important to note that an IVA might not be the right debt solution for you and your situation, which is why you should seek further free independent advice and support from trusted organisations to find out more.

How long does an IVA last?

Typically, an IVA will last five years. The length of your IVA depends on what you can afford to repay, which is determined by the insolvency practitioner (IP) based on the personal details you provide, including income, debts, creditors, and assets.

How long does it take to set up an IVA?

Typically, it can take around four to six weeks to set up an IVA.

The exact timing of the process can vary based on various factors, such as how quickly you’re able to work with the insolvency practitioner (IP), provide any necessary evidence, and how quickly your creditors agree to the agreement.

Is an IVA the same as bankruptcy?

No, an IVA and bankruptcy are not the same thing and are different forms of insolvency. One of the main differences between the two is the length of time which they last - an IVA will typically last for five years whereas a bankruptcy normally lasts one year.

For more information, be sure to read our dedicated bankruptcy guide.

Which debts can I include in an IVA?

Not all debts are suitable for an IVA. Priority debts, which are the debts that you should pay off first as they can cause serious problems such as mortgage or council arrears, can be included. However, some other debts which wouldn’t be suitable for an IVA are things such as:

• Child support arrears 
• Student loans 
• TV Licence arrears 
• Maintenance arrears ordered by a court 
• Social Fund loans 
• Magistrates’ court fines 

Any debts that aren’t included in your IVA will need to be managed separately, so it’s important to ensure you can afford to keep up with those payments before entering into an IVA. If you have a joint debt, your IVA will only cover your share, and the other person will remain responsible for the full amount. However, it is possible to set up ‘interlocking’ IVAs - linked individual arrangements that allow you and the other person to make a joint payment toward your respective debts.

If you’re unsure about which debts are suitable for an IVA, you can seek further advice from organisations, such as National Debtline, or speak to your insolvency practitioner (IP). 

What are the advantages of an IVA?

There are both advantages and disadvantages to an IVA. That’s why it’s important to check that it is a suitable option based on your personal situation before entering an IVA.

An IVA gives you the ability to make monthly payments over a period of time (usually five to six years). These payments are made to be affordable based on your individual circumstances.

• If you’re a homeowner, and you keep up with mortgage payments and any secured loans on the property, then usually your home won’t be at risk.
• After your final payment and confirmation that your IVA has successfully completed, creditors cannot contact you for further payments on that debt. Whether debts are written off after a set time depends on the specific terms of your IVA agreement.
• Once your IVA is approved by your creditors, any interest and charges on accounts included should be frozen. 

What are the disadvantages of an IVA?

As mentioned above, it’s best to make sure that an IVA is the right thing for you, and seek advice on IVAs, before taking any additional steps and entering into an individual voluntary agreement. 

• Your creditors may not accept your proposal for an IVA
• At the end of your IVA, only debts included in the agreement will be written off and you’ll still be liable to pay the rest
• An IVA will be recorded on the insolvency register
• Once you’ve set up an IVA you will have to follow a stricter spending budget
• If you’re a homeowner, you may be asked to remortgage to release equity from your home.

What happens if I stop paying my IVA?

When you miss payments to your IVA, you should receive a ‘notice of breach’ from your insolvency practitioner (IP). In this document, you’ll be asked to explain why this happened and to arrange to cover these missed IVA debts as soon as possible.

If you respond in time and have a way to pay any missed payments then this will be resolved, and no further action will be taken.

However, if your IP doesn’t hear from you then they might cancel your IVA. Your insolvency practitioner would confirm this with a certificate of termination. At this stage your debts would become payable again just as before the IVA, minus the payments made during the IVA.

If you’re finding it hard to keep up with your IVA payment plan it’s important to let your IP know as they might be able to look into other options for you.

To find out more, Citizens Advice have a helpful piece on if you’re struggling with your IVA payments.

What is a windfall clause?

An IVA windfall clause is a common part of many IVA agreements. It means that if you get a large amount of money (a “windfall”) while your IVA is in place, you’ll need to let your insolvency practitioner (IP) know. 
A windfall might be:

• An inheritance
• A lottery win
• Money from a legal claim or compensation

In most cases, this money will need to go towards paying your debt.

For example, if you owe £10,000 in your IVA and receive £5,000 as a windfall, you will usually need to pay that £5,000 into your IVA. You would still carry on with your monthly payments until the rest is paid off.

Every IVA is different, so it’s important to understand what’s included in yours.

Need help understanding your IVA or debt situation? Find help and support from trusted experts.

What is the 10% rule for IVAs?

When you’re in an IVA, you may be allowed to earn a little more money before needing to pay more into your IVA. This is often about 10% more than your normal income. This extra money might come from things like overtime, a bonus, or commission at work. 

Do IVA companies check your bank account?

Yes, your insolvency practitioner (IP) will usually ask to see recent bank statements and payslips when setting up your IVA. They may also ask for these again during regular reviews to check your payments are still affordable.  

Can an IP check HMRC?

Yes. Your IP may check with HMRC (the tax office) to see if you are owed any money, like a tax refund. If you are, that money may need to go towards your IVA. 

Myths and misconceptions about IVA “loopholes”

You might have heard stories about “tricks” or “loopholes” to get around the rules of an IVA. These ideas can sound tempting – especially if money is tight. But in most cases, they’re just myths.

An IVA is a legal plan to help with debt. It is set up by an insolvency practitioner. Trying to get around the rules can cause problems, like breaking the plan, or even getting into legal trouble.

Here are some of the most common IVA “loophole” myths – and the truth behind them.

You can hide money or income from an IVA

Some people think they can keep money or income hidden so they pay less each month. But hiding money from an IVA is not allowed, and it could lead to your IVA being stopped.

Insolvency practitioners look at your income, savings, and spending. If they find something was left out, your creditors might not accept your plan, and it could lead to further action.

IVAs mean you can avoid paying debts 

An IVA can help you deal with debt in a manageable way by making payments you can afford. But it doesn’t make the debt go away. You still need to make regular payments.

At the end of the IVA, some of the debt that is left may be written off. But you are still expected to pay what you can during the plan.

You can inflate your living expenses

Some people think they can say their living costs are higher than they are, so that they pay less. But insolvency practitioners check your budget carefully.

If your costs don’t seem right, they may ask questions. This could slow things down or even stop the IVA from going ahead.

Potential consequences of hiding money from an IVA

An IVA is a legal agreement between you and the people to whom you owe money. You agree to share all the right information, including how much money you earn and what you spend. This helps to ensure your payments are affordable.

Some people might feel tempted to hide extra money; however, this can have severe and long-lasting repercussions. This can cause problems.

Hiding money breaks the rules of the agreement. If this happens:

• Your IVA could stop early (be terminated)
• You may have to pay back all the debt, including interest and charges
• You could be forced into bankruptcy
• In some cases, you could face legal action for fraud. 

It can also affect your credit score, which may make it harder to borrow money in the future.

Many people may believe they can hide money and not get found out. But your IVA is checked regularly. These checks help make sure your plan is still affordable. If something doesn’t match up, it may be looked into.

Can I cancel an IVA?

Yes, you can cancel an IVA at any point of your agreement. If your circumstances change or you would rather enter another debt solution, then cancelling your IVA is an option. Citizens Advice has a helpful guide that talks in more detail about if your circumstances change during your IVA. 

However, cancelling an IVA is an important decision and it’s best to discuss things with your insolvency practitioner (IP) first. This is so that you fully understand what this means, and any consequences involved. If you’re concerned about repayments, then the IP may even be able to speak with your creditors and come to a new agreement. 

Can I pay off an IVA early?

Yes, it is possible to pay off an IVA early by offering your creditors a lump sum of the outstanding amount. This money could come from a sudden unexpected change in circumstances that has resulted in additional income, such as receiving inheritance or a redundancy package.

Before using this money to pay off an IVA early, it’s important to think about whether this is the right decision for you and your situation. If you’re unsure what to do, and you’re currently in an IVA, you should contact your insolvency practitioner to discuss your next steps.

How long does an IVA affect your credit file?

If you enter an individual voluntary arrangement, this will be added to your credit report; and any debts included in your IVA that were reporting to the Credit Reference Agencies will still appear separately. In turn, your credit score may be affected which may impact your ability to borrow money in the future.

An IVA will stay on your credit report for six years from the date it was approved. Should you decide to pay off your IVA early, it will be marked as ‘partially satisfied’ when complete but will remain visible for the remainder of the six-year period, at which point it will be removed.

Once the six-year period has ended, the record will be updated and removed.

What happens at the end of an IVA?

Towards the end of your IVA, your insolvency practitioner (IP) will check that all the necessary payments have been made and that you’ve followed any other obligations according to the agreement.

Once this is approved and you’ve made your final payment, you will receive an IVA completion certificate confirming that you’ve successfully completed your IVA, and that the debts have been cleared.

Your IP will also get in touch with your creditors and the Insolvency Service to let them know. It can take up to three months after the end of your IVA for your name to be removed from the Insolvency Register.

 You can check that this has been done by visiting the Insolvency Service website.

It’s worth noting that there are some situations in which you might not complete your IVA according to the original timeline – for instance, if you had a payment break or additional months were added to your IVA.

If you’re unsure about when your IVA is scheduled to end, be sure to speak to your IP who will be able to explain the terms of your arrangement.

Getting further advice on IVAs

At Lowell, our customers are our top priority, and we want to support you however possible, including if you’d like to seek advice on IVAs. 

We’re unable to provide advice, but we can put you in touch with approved organisations who can help you work out your next steps.  

To find out more information about debt and how you can become debt-free with Lowell, you can find more helpful guides and articles on the Debt Guidance hub.