If you are struggling with an unmanageable level of unsecured debt you can’t afford to repay within a realistic amount of time, but you can commit to making regular reduced monthly payments, an IVA (Individual Voluntary Arrangement) could be right for you.

An IVA is a formal, legally binding agreement between you and your unsecured lenders. When you enter an IVA, you will be required to make regular reduced monthly payments to your IP (Insolvency Practitioner) for, in general, 5 years.

What happens before I enter an IVA?

Before you enter an IVA, you will have to contact a professional debt adviser to discuss your current situation. If they are adamant that an IVA would be the most appropriate way for you to address your debts, then either they – or your IP – will help you draw up an IVA Proposal. This Proposal will include details about how you plan to repay your debts, and how much each lender is likely to receive if the IVA is approved.

How is an IVA approved?

For an IVA to be approved, voting creditors who collectively ‘own’ 75% or more of your total debt have to agree to the terms set out in your IVA Proposal.

What happens next?

If your IVA is approved, you will begin make payments to your IP for, in most cases, 5 years. However, this may change depending on the terms of the IVA and whether you miss any payments throughout the agreement.

When the IVA comes to a successful conclusion (after you have made your final payment), any remaining unsecured debt will be written off.

Are there any restrictions to an IVA?

If you are a homeowner, you may be expected to release some of the equity in your home half way through the final year of the agreement. This money will be used to pay off more of your debt.

In addition, entering an IVA will show up on your credit record, which could affect the cost and/or availability of credit for 6 years from the time it starts.

Before you commit to any debt solution, you should always contact a professional debt adviser. They should be able to assess your situation and advise you on the best course of action you can take to tackle your debts. You may find that a different debt solution is more suitable for you.