With levels of consumer debt having recently surpassed £1 trillion in the UK, more and more people have found themselves in the unfortunate position of having insufficient funds available to cover their outgoings. As many consumers look for an escape out of debt, they are sometimes advised to consider bankruptcy if they have large levels of debt. However, there is another option that may help people who find themselves in financial difficulty reclaim a firm financial grounding: an Individual Voluntary Arrangement, or IVA.



An IVA is a legal contract between you and your creditors, and it is a legally binding arrangement. It is supervised by a licensed Insolvency Practitioner, the purpose of which is to enable you to reach an agreement with your creditors and avoid the consequences of bankruptcy. If you can’t afford to repay all your debts, an IVA can be used to repay as much of the debt as possible in the most appropriate way. Creditors - such as credit card companies, banks and even debt buying companies such as Capquest - are more likely to accept proposals made through an IVA as they are likely to receive a greater monthly payment than they would if a debtor were made bankrupt.

An IVA works in several ways: it reduces the amount of debt that is repaid, freezes interest charges and reduces monthly payments – meaning more money is available at the end of the month. An IVA is a totally private arrangement – nobody needs to know about it apart from the debtor, the supervisor of the IVA and the creditors concerned.

IVAs normally involve the ceasing of interest payments and charges by creditors, as well as a percentage of the outstanding debt being written off. They are prepared to consider this because the alternative may be a bankruptcy where they would receive far less. Generally an IVA will involve a monthly payment plan which lasts for no longer than 5 years. However, this period could be reduced if a lump sum is available, perhaps from the release of equity from property.

IVAs are available to all individuals, Sole Traders and Partners who have encountered financial difficulty. However, IVAs are most commonly used by those who own their own property and wish to avoid the possibility of losing their home or business in the event they are made bankrupt. To set up an IVA, a proposal is submitted to court with a view to obtaining an Interim Order, which is used to stop creditors from taking any further action against the debtor, whilst a meeting of creditors takes place to decide whether or not the proposals for the IVA are acceptable.

Acceptance of the proposals requires 75 per cent in value of those creditors who vote. This 75 per cent relates only to those who actually vote, all will be bound by the terms of the arrangement whether they voted or not. Upon approval of the IVA, a Supervisor is appointed to ensure the proposals are adhered to and to distribute the dividends to creditors.

Assuming the debtor complies with the terms of the arrangement, upon completion of the IVA he will be fully discharged from all liabilities included within it.

There are many companies available who are able to arrange an IVA for those encountering financial difficulty. In most cases, however, these companies will charge a fee for their services, although there are also some charities who can arrange IVAs free of charge. The Citizens Advice Bureau can also advise on setting up an IVA. However, in all cases anyone considering setting up an Individual Voluntary Arrangement should speak to a qualified debt counsellor about the best way forward prior to making any decisions.