Is an IVA worth it?

An Individual Voluntary Arrangement (IVA) is a legally binding formal agreement between a debtor and their creditors and, as we covered in our detailed overview of IVAs, they are one of the UK’s most popular debt solutions with over 71,000 started in 2018 alone*.

IVAs are undoubtedly a well-regarded debt solution, with protections against legal action by creditors and a clear timeline to writing off the remaining debt. Even with these advantages, however, IVAs are not the most appropriate response to debt for everyone, and it’s important to acknowledge that whether any given debt solution is right for you will depend on your personal circumstances.

In this article we discuss some of the key features, advantages and disadvantages of IVAs so that you can take an informed approach to deciding – is it worth getting an IVA?

IVAs in brief

Is an IVA worth it?

As a legally-backed repayment plan, an IVA allows for a debtor to make payments that are affordable to them – usually over a period of five to six years(or in a single lump-sum payment if your financial situation allows for this). During the IVA period, all interest and charges that would ordinarily accumulate against the debt will be frozen. If, by the time an IVA has run its course, the payments have not settled the debt in full, any figure that remains will be written off.

Some people might argue that an IVA’s basic features alone make it a worthwhile debt solution – and it is easy to understand why the prospect of writing off debt is attractive. Despite this, an IVA also comes with significant consequences, for instance, the fact that an IVA will appear on your credit file for six years from the date the arrangement starts with your name also being included on the Individual Insolvency Register up until three months after it ends. This can very seriously impact your ability to access further credit, even if your finances improve dramatically and you find yourself able to pay off your debts early.

 With these points in mind, it’s clear that the question of whether an IVA is worth it is not a simple one. To understand whether this may be the right debt solution for you, it’s necessary to first consider whether you are eligible for an IVA, before weighing up whether the benefits that come attached could help to solve your debt problems – beyond the obvious potential for writing off some of what you owe.

How hard is it to set up an IVA?

Weighing up the benefits of any debt solution is all well and good, but what do you need to do to get an IVA?

How to set up an IVA

Criteria for IVA – can I get one?

Whilst IVAs are generally thought of as a flexible debt solution, you need to be certain that it’s the right approach for your situation. One of the most important criteria is where you live – as IVAs are only available to people in England, Wales and Northern Ireland. Scottish debtors, therefore, will have to look to other solutions for handling their debts.

If your living arrangements do make you eligible for an IVA, you will usually also need:

  • to not have assets that are worth more than your unsecured debts (excluding your home if you own one); and
  • to have some money left over each month after deducting essential living costs (or a lump sum) to pay towards your debts.

Do I need an insolvency practitioner for an IVA?

Unlike certain other debt solutions such as bankruptcy or a debt management plan, you cannot apply for an IVA yourself and will need the assistance of an Insolvency Practitioner (IP). Often, solicitors or accountants, these are professionals that have experience of handling debt and will prepare the proposals that tell your creditors how much money they can expect to receive and about any terms by which you (as the debtor) and they will be bound by for the duration of the IVA.

Provided that the creditors who hold 75% of your debt agree, your IVA will be up and running. Contact between you and your creditors should only be made by your IP, who will stay in place to distribute the repayments you make and otherwise deal with the ongoing administration of your IVA. Whilst it may seem inconvenient to not be able to apply for an IVA yourself, the involvement of an insolvency practitioner can be an appealing feature for those people who don’t want to deal with their creditors directly.

Does an IVA cost?

Administration order fees

With the mandatory involvement of an insolvency practitioner, the cost of setting up and managing an IVA will vary depending on the provider. Most insolvency practitioners will charge professional fees – but these are not normally payable upfront and will instead be deducted from the total amount offered to your creditors (subject to their agreement). This means that, unless you are able to repay your creditors in full in addition to the costs of the IVA (which is unlikely, given your need for a debt solution in the first place) the fees should not affect your financial situation.

Taking Stock

With relatively accommodating criteria, IVAs are potentially suitable for a great number of debtors. Even despite fees and the mandatory involvement of an insolvency practitioner, the process of setting up such an arrangement is relatively unintrusive and in most cases will not make an immediate difference to the financial circumstances of the debtor involved.

Will an IVA protect me?

Once an IVA is set up, the primary benefits of this debt solution are plain to see. Most obviously there is the potential to write off any debt that remains at the end of the IVAs period, but perhaps more immediately helpful is the ability of such an arrangement to freeze interest and fees that would otherwise accrue against a debt. This alone is a source of great relief for some people, as it can prevent their debt from spiralling even further out of control. 

Outside of the key advantages of IVAs, though, what worthwhile measures do they put in place to protect debtors?

Is my home safe in an IVA?

Home safe with IVA?

First, the good news. An IVA will not ordinarily mean that you have to sell your home and you can continue to live there throughout the course of the arrangement. If you do own your own home, you may be expected to remortgages it towards the end of the IVA in order to release a lump-sum payment to put towards your debts. If you are unable to do this, you may have to pay into your IVA for a further period – for instance an extra 12 months.

As an aside, any money that you have saved in an approved pension plan will not ordinarily be deemed to be an asset for the purposes of an IVA, although any money you draw from your pension will be considered part of your ordinary income from which you will have to make repayments.

Can an IVA stop my creditors taking legal action?

A major draw of IVAs is that they are legally binding and prevent your creditors from commencing enforcement action against you once the arrangement is in place. All contact must be made via the insolvency practitioner that is managing your IVA, and you are protected against creditors taking legal action to recover what you owe.

Will an IVA affect my job?

An IVA will not usually affect your job, however those with certain occupations may be subject to restrictions or conditions that change the way they work or prevent them from practicing altogether.  Some employment contracts contain provisions that relate directly to IVAs and other debt solutions, so it may be useful to check yours before making any decisions.

Can I keep my bank account?

Although an IVA should not affect your banking facility, if your current account is held by a provider that you wish to include within an IVA they may be able to deduct money that is owed directly from your account – even if you cannot afford it. This is known as the right of set-off.

Some debtors choose to open a new basic account before starting an IVA, as this can help them to keep some normality by receiving regular income and making usual everyday purchases. Keep in mind, however, that an IVA will be reflected in your credit history for a period of six years from the date it begins, and this may make it difficult to take out any further credit. For the same reason you may also find it harder to open a new current account, although nowadays many leading banks are willing to provide customers with basic banking facilities even if they do have an IVA

Final words – Is an IVA worth it?

Although the above points might help you to make up your own mind about whether an IVA is worth it, a more appropriate question to ask might be “is an IVA right for me?

Even if you meet the criteria, an IVA may not be the most effective debt solution for you and whether you should pursue this course of action will depend on your personal circumstances and financial goals. If you are unsure about which debt solution to choose or have an idea of which one fits your circumstances but don’t know how to proceed, you could benefit from qualified financial advice and there are a great deal of providers offering this service in the UK.

*According to official statistics from the Government Insolvency Service.