What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement — commonly referred to as an IVA — is a formal insolvency procedure governed by the Insolvency Act 1986. It is proposed and supervised by a licensed Insolvency Practitioner (IP) and creates a legally binding agreement between you and your unsecured creditors.

An IVA is generally the right route when your unsecured creditors are threatening legal action such as charging orders or bankruptcy, or you are a company director who cannot consider bankruptcy and your creditors are taking aggressive action. Your income has to be sufficient to sustain monthly contributions over several years. It is also relevant where you need the legal protections that only a formal procedure can provide — the binding effect on all creditors, the suspension of court action, and the certainty of a defined end point with any remaining debt written off.

Something important to understand about how an IVA works in practice: the Insolvency Practitioner who proposes and supervises the IVA is legally obliged to protect creditor interests and maximise returns for them — not to look after you, the debtor. This is not a criticism of IPs; it is a legal reality. It means that having your own adviser, working solely on your side, to structure the proposal before the IP is formally engaged is not just helpful — it is the only way to ensure the arrangement is built around what you can genuinely sustain, rather than what creditors can reasonably expect. Lightside’s role in an IVA is exactly that: we work for you.

The structure. You agree to pay back the maximum you can genuinely afford each month over a fixed period — usually five years. The amount you pay each month is reviewed at least annually and is therefore not fixed. It can increase as your circumstances change, and can also decrease, although sometimes a further creditor vote is required to allow a reduction. If you own a home, you will also be expected to release equity from it during the arrangement if that is possible. Where remortgaging is not achievable, the term of the IVA is typically extended to six or seven years instead. An IVA can last as long as 20 years, although this is very rare. Only at the end of a successful IVA is any remaining unsecured debt written off. During an IVA, creditors stop chasing for the debt.

For the arrangement to proceed, it must be accepted by creditors representing at least 75% of the monetary value of the votes cast. Once that threshold is met, all unsecured creditors — including those who voted against — are bound by the terms. This is one of the IVA’s significant advantages over an informal arrangement: a creditor cannot simply opt out once the vote has passed. For example, if your total unsecured debts are £50,000 and only one creditor owed £5,000 votes, and votes yes, it would be deemed that 100% of creditors by monetary value who voted, voted in favour of the IVA — and all creditors are bound by the vote, despite the majority having not voted at all. In practice, many creditors do not vote. If family members or friends are creditors, their vote counts but special voting rules apply.

The IVA is only suitable for unsecured debt. Secured debts — mortgages, secured loans — cannot be included, and it is essential to maintain contractual repayments on those throughout. Interest and charges on unsecured debts are stopped from the point the IVA is approved. Any court action that has already started can be suspended while the proposal is being formulated and submitted.

There are restrictions to understand. During the IVA period, you cannot borrow money without the supervisor’s permission. A proportion of any bonuses, inheritances, or windfalls must be paid into the arrangement, in addition to the monthly payment. If at any point your income increases enough to repay 100% of the debt plus the IP’s fees, the debt write-off disappears — though this is not typical. Reducing your monthly contributions requires the approval of the supervisor and, in some cases, your creditors.

The IVA appears on the Individual Insolvency Register — a public register maintained by the Insolvency Service and accessible online. It will also have a negative impact on your credit file for six years, visible to landlords, employers and lenders. This distinguishes it from an informal creditor arrangement, which does not appear on a public register, though both affect your credit file.

Failing an IVA is a serious outcome in that you lose the debt write-off the IVA promised. If monthly payments are not maintained, the arrangement can fail — at which point the full original debt becomes payable again, and the payments already made will not have reduced it, because a significant portion may well have gone towards the IP’s fees. The most common cause of IVA failure is a payment level set too optimistically at the outset, not a sudden financial catastrophe. Getting the payment level right from the start, based on an honest assessment of what is genuinely sustainable, is therefore critical. If your financial position changes significantly during the arrangement, contact your supervisor promptly — it is sometimes possible to agree a variation.

If you are considering an IVA, work with an adviser who is 100% on your side to assess whether it is the right option and to structure the proposal before a formal process begins. Our Too Much Debt page explains how we can help.