Is an IVA worth it for you?
An IVA can transform a difficult situation, but it doesn't suit everyone. IndividualVoluntaryArrangements.net helps you weigh up the advantages and disadvantages against your own circumstances rather than a generic checklist. We'll talk about what an IVA would mean for your home, your credit file, your job and your budget over the next five years.
You should be able to decide knowing exactly what an IVA involves. If the drawbacks outweigh the benefits in your case, we'll say so.
How we help you decide
- We compare an IVA with the other options open to you
- We explain the long-term effects as well as the immediate relief
- You decide in your own time, with no pressure
For the right person, an IVA offers legal protection, an affordable payment and a fixed end date. But it also affects your credit file, your finances and potentially your home for several years.
Advantages of an IVA
- One affordable monthly payment
- Interest and charges frozen
- Legal protection from creditors included
- Remaining debt written off on completion
- Fixed end date, usually five years
- Usually keep your home and car
- No upfront fees in most cases
- Can keep running a business if self-employed
Disadvantages of an IVA
- Recorded on your credit file for six years
- Listed on the public Insolvency Register
- Strict budget for the whole term
- May need to release equity from your home
- Windfalls usually go into the IVA
- Fees reduce what creditors receive
- May affect some jobs and professions
- If it fails, you could still owe the debt
The advantages in more detail
Affordable, predictable payments
Your payment is based on a realistic budget, not on what your creditors are demanding. You make one payment each month, and your Insolvency Practitioner deals with your creditors for you.
Legal protection from creditors
Once approved, creditors bound by the IVA can't take legal action or chase you for the debts included. For many people, the biggest benefit is no longer dreading the post or the phone.
A clear end point
Unlike an informal Debt Management Plan, which lasts until debts are repaid, an IVA has a fixed term. When it ends successfully, the remaining balance is written off.
More control than bankruptcy
You aren't required to sell your home, and you usually keep a reasonable vehicle if you need it. You also avoid some of the restrictions that come with bankruptcy.
The disadvantages in more detail
Your credit rating
An IVA stays on your credit file for six years from the date it starts. While it's active, you'll find it difficult to get credit, and you must not borrow more than £500 without permission. See IVAs and your credit rating.
A long commitment
Five years is a long time to live on a tight budget. Your payments are reviewed every year, and if your income goes up, you may need to pay more.
Your home
Homeowners are usually asked to try to release equity towards the end of the IVA. If that isn't possible, the IVA is typically extended by up to 12 months. See IVAs and your home.
Risk of failure
If you can't keep up your payments and the IVA can't be varied, it may fail. You'd lose the protection, and creditors could pursue you for the remaining debt, minus what they've received. See what happens if an IVA fails.
The question to ask: is an IVA better for you than the alternatives? A DMP avoids insolvency but has no legal protection or write-off. A DRO is quicker and free but has strict limits. Bankruptcy is usually shorter but puts assets at risk. Compare them on our debt solutions page.
Who tends to benefit most from an IVA?
An IVA usually works best for people with a steady income, debts they can't realistically repay in full, and something to protect, most often their home. It also tends to suit people whose jobs could be affected by bankruptcy and self-employed people who want to keep trading. If that sounds like you, the benefits of an IVA often outweigh the drawbacks.
- Homeowners who want to avoid the risks bankruptcy poses to their property.
- Employees in roles where bankruptcy would cause problems.
- Self-employed people who need to keep their business running.
- People with debts too large to clear through a DMP in a reasonable time.
Who might be better off with something else?
An IVA is a big commitment, and for some people another option is a better fit. That includes people with very low incomes, who may qualify for a free Debt Relief Order, and people who could repay in full within a few years through a Debt Management Plan. It also includes people who expect a large sum of money soon, such as an inheritance, which could clear the debts without any formal arrangement.
What an IVA can't do
Before you decide, be clear about what an IVA can't do. An IVA won't deal with secured debts such as your mortgage, student loans or court fines, and it won't change the spending pressures that led to the debt unless your budget changes too. It doesn't erase your credit history, and it doesn't protect you from the consequences of not paying priority bills such as council tax or rent. Knowing this upfront helps you decide whether an IVA solves your problem or just part of it.
Talking it through before you commit
Lists of pros and cons only go so far. What matters is how each point applies to you. During your free IVA check, we'll go through the advantages and disadvantages that are relevant to your situation, compare them with the alternatives and answer your questions. You can then take your time to decide. Use the form at the top of this page to get started.
If you'd like to read more first, our guides to IVAs and your home and IVAs and your credit rating cover two of the biggest considerations in more detail. When you're ready, we'll go through how each applies to you.