What is an IVA and who can benefit from one?

IVA stands for an Individual Voluntary Arrangement and it is a legally binding arrangement between you ("the debtor"), and your creditor (the company to whom you are in debt). The intention of an IVA is to reach a compromise with your creditor in order for you to avoid bankruptcy and for your creditors to recoup more of the debt than they would be able to if you were declared bankrupt. This usually means paying a high monthly installment over three to five years and the rest of the debts are written off.

IVAs aren't exclusive and are available to anyone that is feeling the pressure from their creditors and IVAs are particularly used by homeowners wishing to avoid the possibility of losing their home in the event of being declared bankrupt. An IVA is not suitable for everyone. It is usually only worth looking at if you have a lot of money to spare every month to pay your creditors and/or you have a lump sum or assets that can be included.

What are the advantages of an IVA?

• You only pay what you can afford over a fixed period of time, usually an IVA term is five years.
• Interest on your debts will cease to accrue as creditors are required to prove their claims for an amount.
• You may well be running a small business which would be difficult to keep going if you were bankrupt.
• You may be in a profession where you could lose your job if you go bankrupt such as accountancy/police or armed forces.
• You may have access to a large lump sum and want a formal arrangement with your creditors to accept the lump sum and write off the rest of the debts.
• You will not automatically lose your house or other assets, which can be kept out of the IVA with the agreement of the Independent Practitioner and your creditors, although the creditors will usually want most of the equity in your house. See the section on 'Disadvantages of an IVA'.
• You will not have the same restrictions on you as you would if you went bankrupt, e.g. you can still use your bank account without saying you have an IVA.

What are the disadvantages of an IVA?

• If you do not keep to the terms of the IVA then the IP or your creditors can make you bankrupt.
• If creditors do not accept the IVA proposal you are back to square one and your creditors can carry on trying to pursue you for your debts.
• If you paid an up-front fee for your IVA and it is not accepted then you will have lost the fee and be in a worse position than when you started.
• If you own your house the IP and creditors may make you agree to sell your house as part of the IVA. It is standard for IVA agreements to include a clause that you will get your house valued after a set number of years with a view to giving most of the value or 'equity' in your house to the creditors.
• You may be able to pay installments for an extra year to cover the amount of equity in your home. However it could mean selling your house if you cannot raise the money. Your options may include you or a partner taking out a new loan and even securing it on your house. This may be difficult as your credit rating may not be good enough to get a loan through a reputable lender and you would be putting your house at risk.
• There is a risk that the IVA is agreed on the basis of monthly payments that you cannot afford long term. You must be very careful that the payments are set at a realistic amount in the first place.
• If your circumstances change and you can no longer afford the payments your IVA may end if the IP cannot persuade the creditors to accept a new agreement.

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