Money Wellness

IVA benefits and things to consider

An individual voluntary arrangement (IVA) is a legally binding agreement between you and your creditors that lets you pay back your debts at a rate you can afford.

It usually lasts for five or six years. After that time, any remaining debt included in your IVA is written off meaning you don’t have to pay it back.

If your debts have become unaffordable, you may be weighing up the pros and cons of an IVA.

In this guide, we look at the benefits of an IVA and the things you need to consider before deciding whether to go ahead.

woman thinking about bills

IVAs: an overview of the benefits and things to consider

Whether an IVA is right for you will depend on your individual situation. Entering an IVA is a big decision so it’s a good idea to get impartial debt advice first. To help you understand how an IVA may affect your life, we’ll start with an overview of the pros and cons. We’ll cover each point in detail later in the guide.

Benefits of an IVA:

  • you make one affordable payment a month
  • lenders stop contacting you
  • you’re protected from further legal action
  • lenders freeze interest and charges
  • on completion of the IVA, all remaining debt is written off
  • an IVA leaves you with enough money for an acceptable standard of living
  • if you’re a homeowner, you can keep your home

Things to consider

  • an IVA will affect your credit rating
  • there are fees for an IVA
  • details of your IVA will be added to a public register
  • you may need to reduce spending on non-essential items
  • if you’re a homeowner, you may need to remortage
  • it can affect your job if you work in certain sectors
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Benefits of an IVA

Let’s look at the advantages of an IVA in more detail:

One affordable payment each month

While you’re on an IVA, you make one affordable payment each month towards your debts.

The company helping you with your IVA will work out how much money you need to live on. Whatever money you have left over will go towards your debts. You don’t need to worry about dividing it up and making payments to your different lenders. This will all be done for you.

No contact from lenders

Once your lenders have agreed your IVA, they’re legally bound by it. This means they can’t contact you directly for payment. Once your IVA is in place, your insolvency practitioner will deal with your lenders on your behalf.

Protection from further legal action

An IVA stops your lenders taking further legal action against you. This includes sending bailiffs to your home.

Interest and charges frozen

Once your IVA is approved, interest and charges on your debts will be frozen.

Debt written off

Once you complete your IVA, usually after five or six years, any outstanding debt included in your IVA will be written off. This means you won’t be asked to pay it back.

Enough money for an acceptable standard of living

An IVA is designed to leave you with enough money to enjoy an acceptable standard of living.

As well as leaving you money for essentials – such as bills, housing costs, clothing and food – an IVA budget also lets you spend a modest amount on things like socialising. These are all considered necessary living costs.

To make sure your IVA budget is realistic and you’re going to be able to stick to it, the company setting up your debt solution will go through every area of your household spending. This includes:

  • food
  • rent/mortgage payments
  • clothing
  • travel
  • socialising
  • mobile phones
  • broadband
  • gas, electricity and water bills
  • council tax

There are IVA guidelines that set out acceptable limits for each area. These limits are ones that creditors are generally happy with. The IVA expert who goes through your budget with you will make sure you’re not going above these limits without good reason. This means, as well as making sure you’re left with enough money to live on, there’s a high chance the monthly payments being offered to creditors will be accepted. 

Keep your home

Being a homeowner doesn’t stop you from getting an IVA and you won’t be forced to sell your home. You may need to remortgage to raise some money to go towards your debts. Or, if this isn’t possible, you may need to make your IVA payments for up to another 12 months.

Things to consider

Let’s look at the things you need to bear in mind about an IVA in a bit more detail:

An IVA will affect your credit rating

An IVA will stay on your credit file for six years from the date it’s agreed. You’re likely to find it difficult to borrow from mainstream lenders during this time.

The fees

There are always fees for an IVA but they can vary quite a bit between companies. If you get an IVA from our partner company, they’ll only charge a fee if your IVA is accepted by your lenders. These fees are paid out of – not on top of – your regular, affordable IVA payments. Read more about individual voluntary arrangement fees.   

Your details will be added to a public register

The details of your IVA will be recorded on the Insolvency Register. The Insolvency Register holds information about all current IVAs.

Your IVA details will stay on the register for three months after the IVA comes to an end.

You may need to reduce your spending

When you enter an IVA, you agree to follow a strict set of spending rules. This means no luxury or unnecessary purchases and limited access to credit.

The aim of the rules is to make sure your IVA payments are made on time and your debt is cleared within the agreed timeframe.

While your IVA is in place, you’ll be expected to live within a strict budget.

You may need to remortgage

If you’re a homeowner and there’s more than £5,000 of equity in your home, you’ll usually have to remortgage to release money to be paid into your IVA. Equity is how much money you’d make from selling your home once any mortgages were paid off. If you’re unable to remortgage, you may need to carry on making your IVA payments for up to another 12 months.

It may affect your job

For most people, an IVA won’t affect their job. But it may prove problematic in certain professions. If you’re a solicitor or an accountant, for example, you might not be able to carry on in your current position with an IVA. Or you may only be allowed to keep your job subject to certain conditions.

If you have any concerns about the impact an IVA might have on your job, check your contract.

woman with shopping cart thinking about bills

Finding out if an IVA is right for you

Entering an IVA is a big step so it’s important to get impartial debt advice first. If you want to get clued up about IVAs before getting debt advice, you’ll find lots more information on IVAs on our website.

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