Deciding if an individual voluntary arrangement (IVA) is right for you
An individual voluntary arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay back your debts over a period of time.
An IVA can be flexible to suit your needs but it can be expensive and there are risks to consider.
If you're not sure what an individual voluntary arrangement is, read our information about IVAs and how they work.
Benefits of an IVA
Some benefits of an IVA are:
- it's legally binding - this means your creditors have to stick to it and they can't chase you for the debt once the IVA is in place
- it's time limited and you only have to repay while the IVA's in place - usually 5 or 6 years
- creditors usually accept you'll only pay part of the debt
Check if an IVA is right for you
An IVA might be right for you if:
- your debts add up to more than £10,000 - you can get an IVA if you owe less, but the fees are high so there might be better options if your debt is smaller
- you have at least 2 different creditors - creditors are people you owe money to
- you don't want to deal with your creditors directly
- you have enough money to make IVA payments every month - if you need help working this out, contact your nearest Citizens Advice or speak to the Money Advice Service
An IVA can be flexible - if you don't meet all of these criteria, you might still be able to get an IVA. For more advice, contact your nearest Citizens Advice or speak to an insolvency practitioner. You can find a licensed insolvency practitioner on GOV.UK.
When an IVA might not be right for you
IVAs usually involve paying a set amount to your creditors every month for a number of years - usually 5 or 6. You'll have to pay as much as you can afford every month - so if you don't have a fixed income or a permanent job, an IVA might not work for you.
An IVA also might not be right for you if:
- you work in accountancy, law or financial services - check your contract to see if you can keep your job if you get an IVA
- your debts are less than £10,000
- you don't have any spare income or a lump sum available to pay your creditors
- you get support for mortgage interest (SMI) - your SMI payments might stop and you might have to pay back any SMI you’ve had since 6 April 2018
Costs and risks of getting an IVA
Before you get an IVA, find out about the cost and how it could affect your:
- possessions, savings and pension
- credit rating
IVAs are expensive because they have to be set up by a qualified insolvency practitioner. The costs depend on the size of your debt and how much you repay. On average, an IVA costs between £4,000 and £5,000. You'll usually pay the costs in installments as part of your IVA payments.
If you own a home, you might have to remortgage it towards the end of the IVA. You can only remortgage your house if it has equity. Equity is the amount of profit you'd make on your home after you sell the property and pay off your mortgage.
If you can't get your house remortgaged, you'll usually be expected to pay into your IVA for an extra 12 months.
Possessions, savings and pension
If you own a car, or other expensive items, you might have to sell them to pay money into your IVA.
You'll probably have to use any savings you have to pay your creditors.
If you get some money you weren't expecting while your IVA is in place, this is called a 'windfall' - for example, if you inherit some money. You can usually keep the first £500, but you'll have to pay the rest into your IVA.
If you're getting payments from your personal pension, this money counts as income and you might have to use it to pay your creditors.
If you're 55, or will turn 55 while your IVA is in place, it might count as a windfall if you withdraw a one-off payment from your pension - this is called a 'lump sum'.
Getting an IVA will affect your credit rating - this could make it more difficult for you to get credit.
Check what your options are
Make sure you check if there are better ways to deal with your debts. You might be able to:
- apply for bankruptcy - if you don't have any assets, like property, or your home is worth less than the loans secured on it (this is called 'negative equity')
- get a debt relief order - if you don’t own a home, your debts are £20,000 or less and your assets and spare income are low
- set up a debt management plan - if you have some spare income each month to pay your creditors