An IVA, or Individual Voluntary Agreement, is a legally binding agreement between an individual
and their creditors, and is a way of effectively consolidating payments to creditors into one,
manageable and affordable monthly amount. They were introduced after the government passed the
Insolvency Act in 1986, and are designed to provide an alternative option to those that may find
themselves in financial difficulties and do not want to go through the stress and potential stigma
that can be associated with Bankruptcy.
Criteria and repayments
Where an individual has more than £12,000 of unsecured debt and is employed, then a licensed
Insolvency Practitioner (IP) may be able to help by initially consulting with the individual to
establish monthly income and outgoings, then calculating an affordable plan to pay back outstanding
debt, usually over a 3 - 5 year period. The IP will then consult with all creditors involved to
arrange the implementation of the IVA. Provided creditors of 75% of the debt are in agreement the IVA
will usually be accepted.
It is important to remember that an IVA is not just an easy way to wipe out debt without going bankrupt.
While it is true that if creditors agree they will often accept a lower amount repaid than the value of
the original debt, if a debtor has any reasonable assets or savings, they may still be required to use
this to pay back some of the outstanding debt. While an individual in an IVA will not be expected to
sell their house, should the value of the home be worth more than the mortgage, if possible, some equity
may need to be released, again to help pay back some of the debt. Furthermore, there is often a windfall
clause built in to the terms of an IVA, so should an individual come into some unexpected money, such as
winning the lottery, then that money will have to be used towards paying back the creditors. This can of
course have the advantage of ending the IVA early.
With the help of a reputable, licensed Insolvency Practitioner, becoming debt free need not be a stressful
experience and once an IVA is in place, provided the monthly payments are kept; there is a clear timeline
and date which an individual can work towards to become debt free.