An IVA is an Individual Voluntary Arrangement. It’s a formal insolvency procedure that can help people who’ve ended up in a situation where they can’t afford to repay their unsecured debts.

It’s often seen as an alternative to bankruptcy, but that doesn’t mean it’s an easy option. It takes a lot of commitment to make an IVA succeed, since most IVAs require regular monthly payments for around 5 years. Plus, like any form of insolvency, it’ll seriously affect someone’s credit rating.

Having said that, it’s well worth making sure an IVA succeeds. If the individual can make all the payments they’ve agreed to make (which might involve releasing equity from property they own), their creditors will write off all outstanding unsecured debt at the end of it.

But IVAs aren’t available to just anyone. To be eligible for an IVA, a borrower would have to have quite a lot of debt that they can’t afford to repay. They’d also have to live in England, Northern Ireland or Wales – someone who lives in Scotland wouldn’t be able to enter an IVA, although they may be eligible for a Protected Trust Deed (which is similar to an IVA in many ways).

For an IVA to go ahead, the individual would have to talk to an IP (Insolvency Practitioner). If that IP believes an IVA is the best way for that person to tackle their debt problems, they’ll draw up an ‘IVA Proposal’, which basically lays down how they think the IVA could work – in a way that they expect both borrower and lenders will be able to agree to.

If the IVA’s to go ahead, that proposal would then have to be accepted by enough of the creditors – by 75% or more of them by debt value, which means lenders who (between them) are responsible for at least 75% of the individual’s unsecured debt.

If enough of them do accept, the IVA can start. That doesn’t necessarily mean it’ll succeed, though – to make that happen, the individual will have to stay committed to it all the way through (for 5 years, in most cases) and make sure they make their payments. If they run into any problems doing that, they’ll need to talk to their IP and find out what they recommend.

If you can’t afford to repay your unsecured debts within a realistic amount of time, but can commit to making regular reduced monthly payments, then an IVA may be the right debt solution for you.

If you enter an IVA, you will usually make payments for 5 years. When the IVA comes to a successful conclusion, any remaining unsecured debt will be written off.

Please note, however, that an IVA can’t go ahead unless enough of the lenders who would be involved agree to the terms which you and your IP (Insolvency Practitioner) propose.

The differences
IVAs and bankruptcies are very different; the differences listed below are often seen as the most important ones:

An IVA usually lasts for 5 years. Bankruptcy usually lasts for 1 year – but payments may continue for a total of 3 years, and in rare cases, a ‘Bankruptcy Restriction Order’ may be arranged, which can last for 15 years.

An IVA may require you to release some of the equity you have in your home; it is highly unlikely to force the sale of your home. On the other hand, bankruptcy is highly likely to force the sale of your home.

IVAs won’t be published, although they will be shown in the ‘Individual Insolvency Register’ (which is available to the public). In contrast, bankruptcies will be published in newspapers.

If you enter an IVA, certain companies may not hire you. If you have been declared bankrupt, you won’t be allowed to work as a local government councillor, for example, or a company director.

The similarities
IVAs and bankruptcies do, however, have their similarities:

They are both forms of insolvency.

They will both stay on your credit report for 6 years, which could make further credit harder and/or more expensive to obtain during that time.

They both allow you to write off the portion of your debt that you can’t afford to repay.

They both restrict the amount of money you are allowed to borrow while they are in progress.

They can’t write off certain types of debt – for example, secured debts or court fines.

To find out if an IVA would be suitable for you, you should contact a professional debt adviser.