Individual Voluntary Arrangement as a Debt Solution

An Individual Voluntary Arrangement is an agreement between debtors and a creditor entailing a proposed repayment plans for all the debts owed within a period usually not exceeding five years. The agreement usually covers unsecured debtors and does not affect the contract between the creditor and the secured debtors. Individual voluntary arrangement is overseen by an insolvency practitioner(IP).

How it works

The debtor first determines his source of income and its nature. This may be regular income from employment, self-employment or a transfer of cash from a legal source. The debtor then prepares a proposal on how to repay the unsecured creditors. The IP who acts as the link between the debtor and the creditors then presents the proposal at a creditor's meeting convened to consider the proposal. They then vote on the proposal which is passed if the vote in favor of the proposal is at least 75% of the total value of the debts. The vote may be taken by the creditors themselves or by a representative usually referred to as a proxy.


The IVA provides a flexible debt repayment option for those who have substantial amounts of debt. The period provided is usually four to five years and this is enough time for one to make arrangements to repay a substantial amount of debt. In addition to this, any debt that is not repaid after the expiration of the period is automatically written off. This means that whether you have sufficient funds to clear off the debts completely or not, you walk off a debt free man.

Most employers will still allow the debtor to continue working with them even when the agreement is still in force. Therefore, it should not be a cause of unemployment. As the debtor, your assets will be protected from loss. Your creditors cannot sell off your assets in a bid to raise their money. This means that your house, cars if any, and any other assets are not affected by the arrangement unless you decide to sell them off on your own. They cannot sue you for the money you owe as long as the arrangement is still in force. You are also given free debt advice by your practitioner in the process of helping you in servicing your debts faithfully.


The arrangement has an effect on your credit rating. This means that during the enforcement of the arrangement and after this, your credit rating will be very low. Therefore, you may not be able to raise money through loans of any nature especially from financial institutions in excess of £ 500. There is some form of stigma that is associated with engaging in such an agreement. This may affect your social life adversely. This has however decreased since the arrangements are no longer advertised on public media.

Since this arrangement is used by people in bankruptcy, you will cease to be a partner if you were previously in a partnership and you will also lose the right to act as a director of a company. If this was your source of revenue, then you will be at a loss. The arrangement has fees associated with it. It involves the insolvency practitioner's fees and the money used to set up the arrangement.

Debt payment

Since the plan includes regular payment of the creditors, it helps you to get out of debt. You make regular payments to the insolvency practitioner. He then deducts an agreed upon amount as his fees for the services offered and then passes on the rest of the money to the creditors in the agreed upon ratio. While this helps you get out of debt, it is essential to ensure that the practitioner's fees are not too high that they will inhibit the success of the arrangement in the long run.

Your mortgage

The arrangement is between you and your creditors. This means that the debts may be business related or they may be personal. A mortgage is a form of secured loan and can be for a commercial or non-commercial facility. The Mortgage is therefore not affected by the IVA if your property is excluded out of the arrangement. You cannot involve your mortgaged property in the IVA especially without express permission from your mortgage provider. You should continue with your normal mortgage payments or you may make arrangements to pay lower premiums towards servicing your mortgage if need be.

Bank accounts

Even under such an arrangement, it is possible for you to operate your bank accounts. However, this will be under the supervision of your insolvency practitioner to ensure you are making good your word to service the debts faithfully. In case of accounts jointly owned with your partner, this may affect partner. However, the extent of the effects will be quite subjective. In some cases, your partner's credit rating may be affected especially if the some of the debts were incurred jointly. However, the regulation on how your arrangement affects your partner may differ from one state to another.