An IVA, or Individual Voluntary Arrangement, is a legally binding agreement between someone in debt and their creditors under the Insolvency Act 1986. It lets a person who cannot keep up with repayments propose a structured plan, usually lasting five or six years, in which they pay what they can afford each month and any remaining balance covered by the arrangement is written off at the end. It applies in England, Wales, and Northern Ireland, and it sits between an informal debt management plan and full bankruptcy.
What Makes an IVA Legally Binding
Part VIII of the Insolvency Act 1986 gives an IVA its force. Once creditors approve the proposal, Section 260 makes it binding on every creditor who was entitled to vote, including those who voted against it and those who never received notice of the vote. That statutory effect is the difference between an IVA and an informal repayment plan, where any creditor can walk away whenever they choose.
While the arrangement is running, covered creditors cannot chase the debtor for payment, add interest or charges, or start bankruptcy proceedings. In return, the debtor pays an agreed monthly amount into a fund managed by a licensed Insolvency Practitioner, who distributes it among creditors under the plan’s terms. When the term ends and every obligation has been met, the practitioner issues a completion certificate and the outstanding debt within the IVA is written off.
Who Qualifies
There is no statutory minimum or maximum debt level, but the fees involved make IVAs poor value for small balances. The IVA Protocol 2021 flagged debts below £5,000 as unlikely to be suitable and required practitioners to document why an IVA was chosen over cheaper alternatives at that level. In practice, arrangements below about £10,000 rarely make sense. The debtor also needs at least two separate creditors, because the arrangement is designed as a collective agreement rather than a one-to-one negotiation.
Beyond the numbers, the debtor must be genuinely insolvent, meaning unable to pay debts as they fall due, and must have a reliable surplus after essential living costs. That surplus funds the monthly payments. An Insolvency Practitioner reviews bank statements, payslips, and benefit letters to confirm the surplus is realistic and sustainable for the full term. Without a steady surplus, an IVA will not work and a different route should be recommended.
Which Debts an IVA Covers
An IVA is built for unsecured debts: credit cards, personal loans, overdrafts, and catalogue debts. Tax arrears and National Insurance owed to HM Revenue and Customs can also be included. Several categories cannot be:
- Court-ordered maintenance and child support remain the debtor’s personal responsibility throughout.
- Magistrates’ court fines are excluded as criminal penalties.
- Student loans continue to be repaid as normal.
- Secured debts like mortgages are not included unless the secured creditor agrees, which rarely happens when the debt is fully secured.
Any creditor left out of the IVA is not bound by it and can keep pursuing the debtor for full repayment. Most proposals therefore try to capture every unsecured creditor.
What Homeowners Should Expect
Owning a home adds complexity. Under the IVA Protocol 2025 standard terms, available equity is calculated as 85% of the property’s value minus any mortgage or secured lending. The equity figure sets the length of the arrangement:
- Equity below £10,000: the IVA runs for 60 months (five years).
- Equity of £10,000 or more: the IVA runs for 72 months (six years), and the debtor must give the Insolvency Practitioner information explaining why excluding the home is reasonable, including their ability to access further secured lending and the ages of household occupants.
The 2025 Protocol removed the older requirement to attempt a remortgage in the final year. There is now no provision for releasing equity during the IVA or for extending the term beyond the original five or six years because of property equity. A voluntary sale during a running IVA that later fails, though, can prompt creditors to investigate how the proceeds were used.
How a Proposal Gets Approved
The process begins with gathering financial documentation: payslips, benefit letters, bank statements, mortgage or tenancy details, and information about assets such as vehicles. Under Section 253 of the Insolvency Act, the practitioner acting as Nominee must be a qualified insolvency practitioner. The Nominee reviews the information, drafts the proposal, and produces an independent report on whether the plan is reasonable and has a realistic chance of success.
The proposal then goes to creditors for a formal decision. Rule 15.34(6) of the Insolvency (England and Wales) Rules 2016 sets two thresholds:
- At least 75% in value of responding creditors must vote in favour.
- Even if 75% is reached, the proposal fails if more than half the total value of non-associated creditors (those with no personal connection to the debtor) vote against it.
If approved, the Nominee files a report of the creditors’ decision under Rule 8.24 of the Insolvency Rules 2016. The practitioner’s role then shifts from Nominee to Supervisor, taking on collection of monthly payments, distribution to creditors, and compliance monitoring for the life of the arrangement.
What Happens When Circumstances Change
Most IVA agreements include a windfall clause covering unexpected money received during the term, such as an inheritance, lottery win, or large bonus. If the clause applies, the windfall must be paid into the IVA, and failing to disclose it is treated as a breach.
The Protocol also sets rules for income changes. Overtime, bonuses, or commissions only have to be reported if they exceed 10% of normal take-home pay, and even then only a portion goes into the IVA; the extra income must be disclosed within 14 days. Redundancy money has to be reported within two weeks of confirmation, but the debtor keeps the equivalent of six months’ take-home pay before any remainder is directed to creditors. If income drops, the Supervisor can apply to vary the IVA terms, though a variation still needs creditor support.
Missing payments triggers a formal breach process. The Supervisor issues a Notice of Breach, and the debtor has one month to catch up or agree a reduced payment. If the breach is not resolved, the Supervisor can issue a Certificate of Termination, propose a variation, or petition for the debtor’s bankruptcy, and a creditor can file a bankruptcy petition independently. Once an IVA is terminated, creditors can resume collection for the full original debt and add backdated interest and charges covering the entire period the IVA was running.
Effect on Credit and Public Records
An IVA appears on two records. It is entered on the Individual Insolvency Register, a publicly searchable database maintained by the Insolvency Service, and stays there until three months after completion or termination, at which point it is deleted. It is also recorded on the debtor’s credit file with the three main credit reference agencies. That mark stays for six years from the date the IVA started, or until the arrangement is completed, whichever is later.
During the arrangement, getting new credit is very difficult. Most IVA terms also restrict borrowing more than a small amount, typically £500, without the Supervisor’s permission. Rebuilding credit after the mark drops off takes time.
How an IVA Compares to a DRO or Bankruptcy
An IVA is one of three formal insolvency options in England and Wales, and each suits different circumstances.
- A Debt Relief Order (DRO) is designed for people with debts under £50,000, minimal assets, and no property. It lasts 12 months, costs nothing to apply for, and writes off debts at the end. Homeowners are excluded and asset limits are tight.
- Bankruptcy is available regardless of debt level. The debtor’s assets, including property, may be sold to pay creditors. The bankruptcy itself is typically discharged after 12 months, but income payment orders can last three years and the credit impact lasts at least six years.
- An IVA sits in the middle. It lets homeowners keep their property, runs for five or six years, and writes off any unpaid balance at completion. It requires a steady income and creditor approval, but avoids the asset seizure risk of bankruptcy.
Free advice from the Insolvency Service, Citizens Advice, or StepChange Debt Charity can help work out which option fits.
A Note for U.S. Readers
The IVA is a UK insolvency procedure and is not available in the United States. The closest American equivalent is Chapter 13 bankruptcy, which also uses a court-approved repayment plan (three to five years, depending on whether the debtor’s income falls above or below their state’s median) and discharges eligible remaining debt at the end. Anyone with debt discharged through a foreign arrangement like an IVA should speak to a tax professional, because the IRS does not specifically address foreign insolvency procedures in its guidance, and canceled debt is generally treated as taxable income unless an exclusion such as the insolvency exclusion in Publication 4681 applies.