An IVA (Individual Voluntary Arrangement) is a form of insolvency that may be suitable for people who:

• Have an unmanageable level of unsecured debt that they can’t afford to repay, but…

• Can commit to making regular reduced payments for – in most cases – 5 years.

Please note that entering an IVA would show up on your credit report for 6 years and affect the availability and/or cost of credit for this time. Plus, if you’re a homeowner, you might have to release equity from your property in the final year of the IVA. It is important to note that the terms of your IVA will place restrictions on your ability to obtain further credit.

In general, an IVA will last for a total of 5 years (60 months). You would be required to pay your ‘disposable income’ to your IP (Insolvency Practitioner), who would subsequently distribute money amongst your creditors according to how much you owe each of them (this is called a pro rata payment).

If you can stick to your side of the terms for the duration of the IVA, your unsecured creditors will write off any outstanding debt at the end.

However, in these uncertain times, no-one can guarantee that their financial situation will stay the same for 5 years – an unexpected change to your circumstances may take place, which could affect your ability to make payments to your IVA. If this was to happen, you may want to look into an IVA variation.

What is an IVA variation?

As you may be aware, your Insolvency Practitioner will be responsible for representing and supporting you throughout your IVA – acting in the best interests of both you and your creditors. If your circumstances were to change during the agreement, this may involve negotiating for an IVA variation.

An IVA variation is a new proposal detailing the changes that your IP thinks will need to take place to the manner in which you’re repaying your debt, to take into account your new circumstances – and help you bring the agreement to a successful conclusion.

How does an IVA variation work?

If your IP believes that an IVA variation is the most appropriate option, they will work with you to draw up a new proposal, which will be sent to your creditors.

Your IVA variation must be approved in much the same way as your original IVA proposal – in other words, voting creditors accounting for at least 75% of your debt would have to accept the terms before it could go ahead.

Sometimes, an IVA variation will be rejected by creditors. If this happens, and you know you are able to continue with the IVA (but under different terms), you can send an alternative IVA variation to your creditors. However, if you aren’t able to continue with the agreement, the IVA will fail. In this case, you may be advised to look into a different debt solution, such as a debt management plan or even bankruptcy.