What is an IVA?

07 August 2018

Individual Voluntary Arrangements (IVAs) are a statutory insolvency procedure. They are a binding agreement between an individual and their creditors (people who the individual owes money to), typically based on the individual agreeing to repay a portion of their debts over a set period of time. This can involve either selling assets to make payments or making regular contributions from income (or both). As part of the IVA, interest charges are frozen and creditors are prevented from taking action to retrieve what they’re owed outside of the IVA process.

Before an IVA starts, an individual will put a proposal for repaying their debts (or some of their debts) to their creditors. Creditors will then vote on the proposal. IVAs need to be approved by 75% or more of the creditors who vote, based on the value of the debt which is owed (i.e. the creditors who approve the IVA must represent 75% or more of the debt owed by the debtor to the creditors who are voting on the proposals).

An IVA covers all of an individual’s ‘unsecured’ debts (such as credit card debts), including those debts owed to creditors who opposed the IVA. However, an IVA won’t affect ‘secured’ debts (such as a mortgage) without the consent of the secured creditor. Without the secured creditor’s agreement, these debts will have to be paid as they were before the IVA.

An IVA can last for any length of time, but five years is most common. Once an IVA is complete, the individual is released from the debts they owed before the IVA began, with any unpaid balance written off. IVAs will remain on someone’s credit history for six years.

IVAs are very flexible and the final agreement can change from case to case. They can involve a rescheduling of debts, regular or lump sum contributions towards debts by the individual or third parties, or the structured sale of assets to repay creditors.

An IVA is quite different from alternative insolvency procedures, such as bankruptcy. In an IVA, for example, the individual retains control of their assets – in bankruptcy, the individual’s assets come under the control of a trustee. Likewise, while someone cannot be a company director when they are bankrupt, there is no such restriction for someone in an IVA.

An IVA is supervised by an insolvency practitioner who oversees the proposal (as a ‘nominee’) and ensures the individual complies with the terms of the IVA (as a ‘supervisor’). If an individual does not keep up with the terms of their IVA, the IVA may be terminated – and the individual will become liable for their debts again.

IVAs are the most common form of personal insolvency procedure. In 2017, 59,220 people entered an IVA, out of a total of 99,219 new personal insolvencies. There are around 250,000 people currently in an IVA, while over 250,000 people have completed an IVA since 1990.