What is individual voluntary arrangement advantages and disadvantages?

We want to make sure you have all the information on Individual Voluntary Arrangements, how they work, and any potential impact before you even consider entering one.

Let's first start with what it is...

IVA stands for Individual Voluntary Arrangement.

Starting at the beginning...

IVAs were introduced by the UK government in the 1980s under the 1986 Insolvency Act as an alternative to bankruptcy. An IVA is a legally binding agreement you can make with your creditors to pay off all or part of your debts. The idea behind IVAs was to help people with serious debt issues protect their assets, which, if made bankrupt, they would risk losing.

You might think this sounds like a great alternative, but as with everything, there are ‘ifs’ and ‘buts’ to seriously consider. The biggest ‘but’ is if you cannot make the agreed payments towards your IVA, the creditors can make you bankrupt, which means you are no better off financially than when you entered the IVA. Let’s find out more about how an IVA works.

An Insolvency Practitioner sets up the Individual Voluntary Arrangement. As part of the agreement, you’ll be asked to share full details of your financial situation, including any assets, income, and all the creditors you owe money to. The IVA involves an agreed monthly payment, which the Insolvency Practitioner is responsible for splitting between the creditors on the list. If 75% or more of your debt is with one creditor, they must agree to the IVA for approval.

After approximately 5-6 years, the rest of the money owed is written off.

As you’ve probably guessed, this isn’t a free service, with most Insolvency Practitioners charging an initial setup cost and monthly fee for ongoing management of the monthly payments to your creditors. It’s so important to research all the costs; you don’t want to enter into an arrangement like this if the additional costs will make your financial situation even more challenging for you to handle.

When you set up an IVA, there are still some restrictions you need to be aware of that could significantly impact your life. It’s essential to consider these aspects before deciding to make an application—restrictions the guy we mentioned earlier just hadn’t considered at all.

To start with, an Individual Voluntary Arrangement typically lasts 5-6 years and comes with various restrictions that can make it more challenging to get back on your feet financially.

For example.

• In most cases, you won’t be able to borrow or obtain credit for more than £500 without first obtaining permission from the insolvency practitioner. There are some exceptions, but these are limited to things like public utilities.
• It’s also important to note that not all debts can be covered under an IVA. Debts like mortgages, secured debts, student loans, court fines, child maintenance/support arrears, and TV licence arrears are treated differently, and all need to be paid as they will not be included in the IVA.
• Not only that, but you’ll be added to the publicly accessible Individual Insolvency Register (IIR) for the duration of the agreement, and you’ll only be removed three months after the IVA has ended.

The IVA will remain on your credit file for six years from the date the IVA was approved. In terms of obtaining future credit, an IVA will affect you similarly to bankruptcy. Unfortunately, if you’ve had an IVA, you may find it difficult to obtain credit for the six years it sits on your credit file.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.