An IVA (Individual Voluntary Arrangement) is a form of insolvency, and an agreement between a borrower and their non-priority lenders - so it covers unsecured debts like credit cards, store cards and personal loans, rather than secured debts like mortgages.



Basically, if the individual and their lenders can agree on the terms - with the help of an Insolvency Practitioner or 'IP' - they will sign up to a legally binding agreement.

The individual will commit to making a fixed monthly payment for a specified period (normally five years), instead of making any more payments directly towards their unsecured debts. Those payments will be based on the maximum the individual could afford, leaving them enough to pay for all their essential expenses, from mortgage/rent and utility bills to food and petrol.

They'll also agree to contribute a portion of any extra money they earn in that period: pay-rise, bonuses, commission, etc. And if they're a homeowner, they'll be required to release equity from their home in the 54th month (halfway through the final year of the IVA), so they can pay more into the IVA.

In return, the lenders will agree to freeze interest on the debt, and not to pursue any (further) legal action against the individual, including trying to make them bankrupt. What's more, they'll agree to write off any outstanding debt once the IVA has come to a successful completion - in other words, only if the individual can stick to their side of the deal and make all necessary payments throughout the term of the IVA.

So, an IVA offers significant benefits to everyone involved. The lenders know they'll receive a certain amount of money over a certain time period, which will add up to more than they could expect to receive by trying to make the individual bankrupt - although bankruptcy would still be an option if the borrower doesn't maintain their payments (so an IVA wouldn't be a good idea for someone whose income isn't steady, or who has another reason to suspect they won't be able to commit to making those regular payments).

The borrower knows they won't receive any more demands from the lenders. They know their monthly payments to the IVA will be lower than the total of the payments they've been making towards their unsecured debts. What's more, those payments will be calculated to leave them enough for all their essential expenses, so they won't have to worry about being evicted, having their utilities shut off, or being unable to afford food, petrol, etc. They know that the portion of the debt they can't afford to repay will be written off as long as they stick to their side of the arrangement. And they'll know there's a 'light at the end of the tunnel' - they'll be able to look forward to a fixed date when they know they'll be debt free and able to get on with their life.

Please note: an IVA can't go ahead unless lenders who collectively own 75% of the total debt agree to the terms set out in the IVA proposal (the formal offer which tells lenders what they can expect to receive).

And it's important to remember that an IVA is a formal insolvency procedure which will be recorded on the individual's credit report for six years from the day it begins (so it'll stay there for one year after the IVA has finished), making further credit harder and more expensive to obtain.