If you’ve been weighing up the different ways to tackle debt, you will probably have looked at an Individual Voluntary Arrangement (IVA) as a potential solution.
To make an informed decision, it’s crucial to weigh the IVA pros and cons to see whether it would make sense for your personal circumstances.
In this comprehensive guide, we’ll discuss the advantages and disadvantages of an IVA, discuss eligibility criteria, and compare it to other debt solutions.
We’ll also share real-life IVA success stories to provide you with a well-rounded understanding of this debt solution.
What is an IVA?
An IVA is a legally binding agreement designed to help individuals repay their unsecured debts such as credit cards and loans over a fixed period, typically 5 years.
This debt solution allows for affordable monthly payments tailored to individual financial circumstances while offering some level of legal protection from creditors.
Upon successful completion of an IVA, any remaining unsecured debt is written off, providing a fresh start for those who have been struggling with their finances.
Want to find out more about how PennyPlan can help you with your debt?
Is an IVA a Good Idea?
An IVA can be a good idea for someone who is struggling with unaffordable unsecured debts and needs a structured way to repay what they can afford. But it isn’t automatically the best option for everyone.
You could make one regular payment instead of dealing with multiple creditors, interest and charges may be stopped, and any remaining included debt may be written off when you successfully complete the arrangement. An IVA can also protect you from creditor action once it has been approved.
However, these benefits need to be weighed against the disadvantages. An IVA can affect your credit file, restrict your ability to take out further credit and require you to make agreed payments for the duration of the arrangement. If you own a home, your property and equity may also need to be considered.
The question isn’t whether an IVA is good or bad. It’s whether an IVA is right for your financial circumstances. Getting independent debt advice can help you compare your options before committing to a legally binding arrangement.
Advantages of an IVA
Entering into an IVA comes with several benefits, for some more than others depending on your own personal circumstances.
The Individual Voluntary Arrangement can stop creditor contact, protect your house and even write off a portion of your debt.
Read on to find out the IVA pros that could make the solution an appealing option.
| IVA Advantage | What it Means |
|---|---|
| One affordable monthly payment | Make one agreed payment based on what you can reasonably afford. |
| Protection from creditors | Creditors bound by the IVA must follow its terms. |
| Debt write-off | Remaining qualifying debt can be written off after successful completion. |
| Asset protection | You may be able to retain certain assets, subject to the terms of your IVA. |
| Frozen interest and charges | Interest and charges on included debts are frozen while the IVA remains in place. |
| Protection from legal action | An IVA can protect you from certain recovery action relating to included debts. |
One affordable monthly payment
A key benefit of an IVA is that you make one agreed monthly payment instead of trying to manage payments to multiple unsecured creditors separately and struggling to keep track of them.
Your payment is based on what you can reasonably afford after your essential household costs have been taken into account. This can make your finances easier to manage and give you a clearer idea of how much you need to pay towards your debts each month.
Your Insolvency Practitioner (IP) will assess your income and outgoings to determine an affordable monthly repayment you can maintain without falling behind on household bills. The affordable monthly payments provide a sense of financial stability and make it easier to budget and plan for the future.
Individual Voluntary Arrangements also take into consideration changes in circumstances. This means that if your income changes, or expenses increase, then your Practitioner can review your new circumstances to keep your IVA payment at an affordable rate.
You can have protection from creditor action
One of the most significant benefits of an IVA is the legal protection it provides. An IVA is legally binding.
This means that as long as you adhere to your side of the agreement, creditors must adhere to the terms of the IVA for its duration also. For someone dealing with persistent calls, letters, or other attempts to recover debts, having a formal arrangement in place can provide much-needed breathing space and less stress.
You could have some of your debt written off
If you successfully complete your IVA and meet all of its terms, you can be released from the unsecured debts included in the arrangement. This means you may not have to repay the full amount you originally owed.
This can provide a clear route towards becoming debt-free when repaying your debts in full would otherwise be unrealistic.
Compared to other debt solutions such as a debt management plan, where you have to repay the debt in full and potentially interest and charges, it can shave a significant amount off your time to debt freedom.
The amount of debt that could be written off will depend on your circumstances and the terms agreed with your creditors. It’s important not to assume that a particular percentage of your debt will be written off.
Asset protection
Another advantage of an IVA is the protection of your personal assets. If you are a homeowner, this could potentially make the solution more favourable than the other debt solution of Bankruptcy.
While assets such as your home or vehicle may need to be assessed for equity release, they are generally safeguarded from being sold to repay your debts.
This aspect of an IVA gives people peace of mind regarding their assets to focus fully on repaying their unsecured commitments.
Interest rates and charges are frozen
An IVA halts interest rates and charges on your unsecured debts to whom you owe money, ensuring that balances do not continue to rise.
Rising interest and charges can cause stress and anxiety, with a feeling of being unable to escape the ever-increasing debt level. Rather than seeing a growing number, you would be able to see a figure that descends and allows you to feel progression.
However, it’s important to understand that this protection depends on the IVA remaining in place. If an IVA is terminated, creditors may be able to pursue outstanding balances and interest and charges that were frozen during the arrangement.
Protection from legal action (including bailiffs)
An IVA offers protection from legal action, such as council tax bailiffs and court orders.
This can be one of the biggest reliefs and appeals for people to choose a formal arrangement like an IVA as opposed to an informal solution, a Debt Management Plan.
Bailiffs can be a particularly traumatic experience that can cause huge stress and worry. An IVA can halt this action in its tracks and protect you moving forward as long as you continue to adhere to the agreement.
Want to find out more about how PennyPlan can help you with your debt?
Disadvantages of an IVA
Knowing the benefits of an IVA is important, but they also need to be weighed against the disadvantages to give you a full picture of what to expect.
An IVA is a legally binding agreement and can affect your credit file, restrict certain borrowing, and require you to meet its terms for several years. That’s why it’s important to consider both sides before deciding whether an IVA is right for you.
| IVA Disadvantage | What it Means |
|---|---|
| Impact on your credit file | An IVA will affect your credit file and can make it harder to access further credit. |
| Limits on further borrowing | You may need your Supervisor’s approval before taking out additional credit while your IVA is active. |
| Not all debts can be included | Certain debts, including secured debts, child maintenance and student loans, must be dealt with separately. |
| Payments must be maintained | Your IVA could be at risk of termination if you don’t meet the agreed obligations. |
| Regular financial reviews | Your income and expenditure will be reviewed and your payments may change if your circumstances do. |
| Creditor approval is required | Your IVA proposal must receive the required level of creditor approval before it can go ahead. |
An IVA affects your credit file
An IVA will negatively affect your score with credit reference agencies for the term of the solution. Once the IVA has completed, it stays on your credit file for a further 12 months (6 years in total).
This adverse impact on your credit rating may make it difficult to obtain further credit, loans, or mortgages for a period after completion of the IVA.
It’s also important to remember that your credit score isn’t the only factor lenders consider. Each lender has its own criteria, so the impact of an IVA can vary depending on your circumstances and the type of credit you’re applying for.
Limitations on further borrowing
An IVA can limit your ability to take out additional credit while the arrangement is in place.
Under the 2025 IVA Protocol, you must generally get your Supervisor’s written approval before taking out credit of more than £500, with certain exceptions such as public utilities and insurance. Taking out credit above this amount without the required approval can breach the terms of your IVA.
This means an IVA can make it more difficult to borrow money for unexpected expenses or major purchases. If you’re considering taking out any significant new borrowing, you should discuss it with your Insolvency Practitioner first.
Only unsecured debts can be included
An IVA only covers unsecured debts, not secured debts like mortgages or car finance agreements.
If you have a mix of secured and unsecured commitments, you will need to continue repaying your secured debts separately whilst also making IVA payments.
However, an Insolvency Practitioner will budget your secured commitments into your expenditure to ensure any disposable income has taken into account all of your outgoings.
You have to keep up with your IVA payments
An IVA is a legally binding agreement, so you need to keep up with the payments and other commitments set out in its terms.
Your regular payment should be based on what you can realistically afford, but your circumstances can change during the arrangement. You’ll have to provide information for regular reviews of your income and expenditure, and your payments may change if your disposable income increases.
If you don’t meet your obligations, your IVA could be at risk of termination. If an IVA is terminated, creditors may be able to pursue the outstanding debts again.
Your financial circumstances can be reviewed
Entering an IVA doesn’t mean your financial circumstances are simply fixed for the duration of the arrangement.
Under the 2025 Protocol, your income and expenditure are reviewed annually. You’ll need to provide information such as payslips, P60s, and bank statements, where requested. If your disposable income increases, your regular contribution may also increase.
You must also tell your Supervisor about certain changes in your circumstances, including additional income or assets that could affect the arrangement.
For some people, this ongoing financial review can feel restrictive compared with managing their finances independently.
Your creditors have to agree to the IVA
An IVA isn’t automatically approved simply because you decide that you want one.
Your Insolvency Practitioner will prepare a proposal setting out how you intend to deal with your debts, which is then put to your creditors. An IVA requires creditors representing at least 75% of the debts of those voting to approve it. Once approved, it becomes binding on the creditors included in the arrangement, including those who voted against it.
This means there is no guarantee that a proposed IVA will be accepted.
Limitations on certain debt types
Some types of debt cannot be included in an IVA and must be repaid separately, such as secured debts, child maintenance, and student loans.
Benefit overpayments that have been deemed fraudulent rather than miscalculated cannot be included either.
If you have a mix of eligible and ineligible debts, you will need to continue repaying these ineligible debts separately.
However, the ineligible debts are included in your income and expenditure to ensure that the IVA payment remains affordable.
Who Is An IVA Suitable For?
An IVA can be suitable for people who are struggling with multiple unaffordable debts and need a formal, structured way to repay what they can afford. However, there isn’t a simple checklist that means an IVA is automatically right for you. Your income, debts, essential spending, assets, and wider circumstances all need to be considered.
Under the 2025 IVA Protocol, someone suitable for a standard consumer IVA will generally have a regular, sustainable income, multiple debts totalling £7,000 or more, relatively uncomplicated assets, and be unable to repay their debts in full within the proposed IVA period. They should also not be eligible for a Debt Relief Order (DRO).
Getting advice before choosing an IVA is important. The most suitable debt solution isn’t necessarily the one that offers the biggest debt write-off.
IVA Eligibility Criteria
To be eligible for an IVA, you must have a minimum of £6,000 in qualifying unsecured debt owed to two or more creditors. There is no criteria on the split required between the creditors.
In addition, a regular income is required to ensure that you can maintain the monthly payments agreed upon in the IVA. This income must leave you with a ‘disposable income’ after paying out your household bills, which can be offered to creditors as a monthly payment.
If your creditors do not agree to the IVA, you may need to explore alternative debt solutions such as a debt management plan or bankruptcy.
Want to find out more about how PennyPlan can help you with your debt?
How Does an IVA Compare to Other Debt Solutions?
Before deciding on an IVA, it’s essential to compare it to other debt solutions that may be available, such as:
- Debt management plans
- Debt consolidation loans
- Bankruptcy
- Debt relief orders
- Administration orders
Each of these solutions has its own set of pros and cons, and the best solution for you will depend on your individual circumstances.
For example, while bankruptcy may offer a quicker path to debt relief, it may also have more severe consequences for your credit rating and assets. A similar option is a Debt Relief Order (DRO for short), but that also has strict criteria to be eligible.
On the other hand, a debt management plan may provide a more flexible repayment schedule but may not offer the same legal protection as an IVA.
It’s crucial to consider all available options and consult with a debt advisor for debt advice before committing to any debt solution.
Could An IVA Be Right For You?
In conclusion, an Individual Voluntary Arrangement has the potential to be a viable solution for those struggling with unsecured debt.
IVA advantages such as halting legal action and debt write-off, it can provide a path to financial freedom in a better timeframe than some of its counterparts.
However, it’s important to consider the potential disadvantages, such as the impact on your credit rating and ability to obtain further credit for the IVA duration.
By carefully weighing the pros and cons of an IVA, and comparing it to other debt solutions, you can make an informed decision that best suits your financial situation and gives you the best chance of becoming debt-free.
If you’re anxious about choosing a reputable company to seek IVA advice from, our article on how to spot IVA companies to avoid could be beneficial.
Find out if an IVA could be right for you by checking your IVA eligibility
When Is an IVA a Bad Idea?
An IVA may be a bad idea if the payments aren’t affordable over the long term or your circumstances make another debt solution more suitable. As an IVA is legally binding, it’s important to consider whether you can realistically maintain the arrangement before agreeing to one.
An IVA may not be suitable if you:
- Don’t have enough disposable income to maintain the payments. Falling behind with your agreed obligations could put your IVA at risk of termination.
- Have mainly debts that can’t be included. Certain debts will still need to be paid separately, so an IVA may not address the main cause of your financial difficulties.
- Could realistically repay your debts without an IVA. An alternative such as a Debt Management Plan could be worth considering if you can repay your unsecured debts in full but need lower monthly payments.
- Have an income that changes significantly. IVA payments are reviewed and can change alongside your financial circumstances, so an unpredictable income needs careful consideration.
- Would be significantly affected by the restrictions of an IVA. Credit restrictions, financial reviews and the potential implications for assets should all be considered before entering the arrangement.
An IVA should only be considered after looking at your full financial situation and the alternative debt solutions available. Professional debt advice can help you understand the possible outcomes of each option before you enter a legally binding agreement.
Frequently Asked Questions
What are the IVA advantages?
The potential advantages of an IVA include making one affordable monthly payment, having interest and charges dealt with under the arrangement, protection from creditor action once the IVA is approved, and potentially having remaining included debts written off when the IVA is successfully completed. An IVA can also provide a clear structure for dealing with unaffordable debt.
What are the disadvantages of IVA?
The disadvantages can include an impact on your credit file, restrictions on further borrowing, ongoing payment commitments and the need to disclose changes in your financial circumstances. Your assets may also be taken into account, and an IVA can affect future financial plans such as applying for a mortgage.
Is an IVA a good idea?
An IVA can be a good idea if you have unsecured debts you can’t afford to repay in full and can maintain regular payments towards them. It can provide a structured, legally binding way to deal with qualifying debts, but it will also affect your credit file and place restrictions on your finances.
Whether an IVA is suitable will depend on your debts, income, expenditure, assets and the other debt solutions available to you.
What types of debts are eligible for an IVA?
Most unsecured debts, such as loans, credit cards and council tax, can be included in an IVA.
How long does an IVA last?
An IVA will generally last 60 months, or 72 months where the consumer has a beneficial interest in a family home worth more than £10,000 under the 2025 Protocol. The exact terms of an IVA can vary depending on the proposal and your circumstances.
Does an IVA write off debt?
If you successfully complete your IVA and meet its terms, remaining debts included in the arrangement can be written off. This doesn’t mean every type of debt can be included, and debts that fall outside the arrangement may still need to be repaid.
What happens if I can’t afford my IVA payments?
If your circumstances change and you can no longer afford your agreed payments, you should contact your Insolvency Practitioner as soon as possible. They can review your situation and explain what options may be available.
Don’t simply stop making payments without speaking to your Insolvency Practitioner, as failing to meet the terms of your IVA could put the arrangement at risk.
Is an IVA better than a Debt Management Plan?
Neither solution is automatically better. An IVA is a formal, legally binding arrangement with specific consequences, while a Debt Management Plan (DMP) is generally an informal arrangement for repaying debts.
The most suitable option depends on your circumstances, including the amount and type of debt you have, your income, your assets and what you can realistically afford to repay. The IVA Protocol specifically requires alternative debt solutions to be considered when deciding whether a protocol IVA is appropriate.
Can I cancel an IVA?
You can ask for your IVA to be cancelled, but cancelling an IVA can have serious consequences. Depending on the circumstances, creditors may be able to pursue debts that were included in the arrangement.
If you’re considering cancelling your IVA, speak to your Insolvency Practitioner and get independent debt advice before making a decision. The current IVA Protocol states that consumers should be signposted towards free, regulated debt advice where an IVA is terminated.
Does an IVA affect your credit score?
Yes. An IVA will be recorded on your credit file and can make it harder to access credit while it remains there. Under the current guidance, an IVA generally remains on your credit file for six years from the date it starts.
