IVAs explained

An IVA, or individual voluntary arrangement, is a legally binding agreement between you and any company to whom you are in debt. It sets out how and when you will pay back what is owed

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Should you take out an IVA?

If you are in debt and struggling to make your repayments, an IVA (individual voluntary arrangement) is one option to become debt-free. 

It is a formal agreement, usually arranged through a third-party company. It is approved by a court, and both you and the credit companies to whom you owe money have to agree and stick to the terms set out in it. 

In some cases, it can be a good way to clear your debts and to prevent them from increasing further. With an IVA, your creditors usually accept that not all of the debt will be paid back - so some of what you owe is written off.

If you own your home, having an IVA usually means you will be able to keep it as long as you keep up with the mortgage payments and any payments that are secured against the property.

However, it is just one option when it comes to debt management and it can be costly. 

There are also debt management plans or bankruptcy and it’s important to find the right solution for you. It’s not something to decide on a whim and you need to carefully consider all the options and costs. 

Here we look at everything you need to know about IVAs, including how they work, the drawbacks of such agreements, what to consider before applying for one, and the best alternatives.

What is an IVA?

IVA stands for individual voluntary arrangement. It usually lasts for six years and is a way to pay off unmanageable debts. It’s a legal and formal contract between you and the companies to whom you owe money.

It is set up by an insolvency practitioner, who you need to pay. The amount you charged is usually based on how much you owe, and if you go through a debt management agency, you’ll usually pay more.

An IVA can be flexible and it has to be set at an affordable rate. You can choose between regular payments, a lump sum, or a combination of the two. 

The money is paid to the insolvency practitioner and it distributes the funds among the companies to whom you are indebted. At the end of the IVA term, any debt you have left to pay is written off. 

You must stick to certain rules during the IVA, these include the following:

  • Setting and sticking to a monthly budget

  • Making all repayments on time

  • Only borrowing up to £500 during the IVA – any more and you’ll need approval from the practitioner

  • Any savings you have may be used to pay off your creditors


When the IVA is set up, it is recorded on the Individual Insolvency Register which can be viewed by anyone online, but it is usually only used by those working for credit and insolvency providers. 

It might not just be banks or credit companies who are told about your IVA, however. 

Anyone to whom you owe money - be it the local council, an energy provider, or a mobile phone operator - will be notified. 

For self-employed workers, HM Revenue & Customs (HMRC) and any trade creditors you have will also be alerted about the IVA.   

While it is one way to become debt-free, it can be expensive. Therefore, it’s worth making sure you also understand all the costs involved before taking one out. There are other drawbacks too.

What are the drawbacks of taking out an IVA?

The main negative points are as follows:

It comes with a cost

If you take out an IVA, you’ll have to pay for it and the fees are usually around £5,000, according to Experian. You don’t pay this upfront – the cost will come out of your repayments. These go to the insolvency practitioner who will use them to pay off your debts and settle their fees. You should be told exactly how much you’ll pay for having an IVA from the start.

Your creditors have to agree to it

For the IVA to go ahead, both you and your creditors need to agree to it and there’s nothing in place to say that they must consent.

The insolvency practitioner controls your spending and borrowing

There are limits on how much you can spend and borrow, and if you want to borrow more than £500, you’ll have to get approval from your practitioner. 

Any windfalls will go towards the IVA

During the term of the IVA, if you come into any money, such as through inheritance, this can be used to pay your creditors. If you find out you are due money for something that happened before the IVA was set up, your creditors may also be able to claim this, even after the IVA has technically finished.

Your credit score will go down

IVAs affect your credit score. The agreement will be recorded on your credit report and remain there for six years after the date it was approved. This means any potential lenders will see it and your credit score may go down as a result. 

It affects future borrowing

You may struggle to borrow money, even after the IVA is paid off. It shows you have had difficulty repaying debt in the past and this will be taken into consideration by any future lenders. As a result, you may not be able to take on more credit or you might be charged a high-interest rate for any borrowing you do secure. 

Homeowners may have to remortgage

For homeowners, if there is equity in your home you may have to remortgage to release some of this money and you could be put on a mortgage with a higher interest rate. If you can’t remortgage your home, you can make a maximum of payments for 12 months after the IVA has finished. 

Your job may be affected

If you work in finance or if you are a company director, or work in the law, property or accountancy sectors, your job may be affected. The best way to find out is by speaking to a professional membership body or trade union, or asking to speak confidentially to your HR department.  

Who can apply for one?

Not everyone can apply for an IVA and there are rules around who is eligible. At least 75% of your debts need to be included within the IVA. Some debts fall outside of the scope of IVAs – such as student loans, fines and child support. 

There is no minimum or maximum amount of debt level needed for an IVA but they are usually used with debts of at least £10,000. This is because the fees are high and therefore if you owe less a different type of debt solution might be cheaper. You should have at least two creditors and you need to be able to pay the IVA every month. 

IVAs don’t exist in Scotland but you may be able to get a Protected Trust Deed instead, which works in a similar way.  

What do you need to consider before taking out an IVA? 

There is a lot to think about with an IVA. On one hand, it will help you become debt-free. It’s a way to clear your debt without paying the full amount back, and it can help you get back on track if you’re struggling.

However, there are lots of consequences of having an IVA and they are not to be entered into lightly. They can have short and long-term implications for future spending and borrowing. 

There are other options available for clearing your debts, so before you agree to anything it’s important to understand exactly what’s available and the costs involved. 

You can also speak free of charge to an independent debt charity, such as Step Change. It has experts who can tell you the ins and outs of all debt solutions in confidence and help you find one that is right for you. 

How to choose an insolvency practitioner 

If you search for an insolvency practitioner or IVA online, you’ll be met by hundreds of options, all promising to be the best and cheapest options. 

However, this is a competitive market and while there are plenty of professional, responsible insolvency practitioners, others are simply looking to make money from your debt. 

Debt management companies tend to be the most expensive way to take out an IVA and therefore you should first use a website like StepChange to find a practitioner who is licensed to act in the UK by the Insolvency Practitioners Association. StepChange doesn’t charge you for advice. 

You can also search for practitioners on the gov.uk website

The short, medium and long term impacts of taking out an IVA

When you take out an IVA, you need to look at how it will affect you and your finances over the entire term of the contract. 

During the agreement, your spending and borrowing are kept under strict control by the terms of the IVA and your practitioner. 

But even after it’s been paid off, it remains on your credit report for six years after the starting date. Therefore, you may have problems borrowing money during those six years as IVA will be seen by potetial lenders.

The best alternatives to an IVA  

If you are having problems paying off your debts the first thing to do is speak to a debt charity, such as Step Change or National Debtline. They can look at your situation and give your free, independent advice on the best options for repaying your debts. 

The three main alternatives to an IVA are a debt management plan, bankruptcy, or a debt relief order. Here we briefly explain how each works.

Debt management plan

This can work well if you have money to pay towards your debts each month. It’s not legally binding, so it can be cancelled at any time. With a debt management plan, you make a paymenteach month that is divided among your creditors.


Best for those who don’t have any assets or if their home is worth less than the loans secured against. It has serious consequences on your life and your finances, however.

Debt Relief Order

This is suitable for those with debts of £30,000 or less who don’t own their own homes or have much spare income each month.

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