An individual voluntary arrangement (IVA) is an agreement with creditors to settle personal debts over a fixed period of time. Creditors agree to accept reduced payments over a period of normally 5-6 years. By using the Arrangement individuals can commonly write off a considerable amount of debt. However this debt solution does not suit everyone. Its suitability will very much depend on your individual circumstances. There are specific circumstances when an IVA can and cannot be used.

How much debt is required for an IVA?

Generally for an IVA to be suitable you need to owe at least £18,000 to your unsecured creditors. You should also owe money to two or more different banks. Where debts are lower than £18,000 it becomes increasingly likely that you will be able to repay the debt you owe within 5 years by simply using a debt management plan.

Update: Since this article was written the debt threshold to start an IVA has reduced to as low as c£6,000

Is your income sustainable?

An IVA is a formal legally binding agreement. If you start the Arrangement and then find that you are unable to maintain the agreed payments it could then fail. As such, before starting you should be relatively confident that you can fund the monthly payments you agree to.

BMD Tip: It is possible to carry out an IVA without a sustainable income. However you would need to make a cash lump sum available which could be used to pay off the IVA in full and final settlement.

How will your Home be affected by an IVA?

You can carry out an IVA whether you are a home owner or renting your property. Generally home owners will consider the solution because it will allow them to maintain control of their property. If there is equity in your home some of this may have to be released to give creditors a better return. However, this is a far better option than bankruptcy where the house may have to be sold altogether.

BMD Tip: If you are renting your home will not be affected if you start an IVA. As long as you maintain your rent payments you will be allowed to remain in the property. The landlord is not informed that you are in an IVA.

Can you start an IVA if you are a Company Director?

If a director of a limited company gets into financial difficulty an IVA may be an ideal solution. Unlike bankruptcy, there are no restrictions on directors using this debt solution. In fact the IVA legislation was actually introduced with the intention of helping business people deal with their debt problems.