Individual voluntary arrangements (IVAs)

In short

• An IVA is a formal deal with your creditors, set up by an insolvency practitioner. You pay one amount each month, usually for 5 years.
• It is approved if creditors holding 75% of the debt, by value, of those who vote agree. It then binds all of them.
• Council tax arrears can be included, but councils often vote against IVAs where council tax is most of the debt.
• Fees come out of your payments. If the IVA fails, you can be left worse off.
• It is usually the wrong choice if council tax is your main debt. A special payment arrangement costs nothing.

An individual voluntary arrangement is a formal, legally binding agreement between you and the people you owe. It is set up and supervised by a licensed insolvency practitioner. You make one monthly payment for an agreed time, usually five years, and at the end whatever is left of the included debts is written off.

IVAs are available in England, Wales and Northern Ireland. The Scottish equivalent is a protected trust deed.

• 5 years the usual length
• 75% of creditors, by value, must agree
• 6 years on your credit file
• Fees taken from your payments

How an IVA works

1. 1

   Start

   An insolvency practitioner reviews your finances

   Income, outgoings, debts and anything you own, and drafts a proposal to your creditors.

2. 2

   A few weeks

   Your creditors vote

   It is approved if creditors holding 75% of the debt, by value, of those who vote agree. It then binds all of them.

3. 3

   Usually 5 years

   One monthly payment

   Made to the insolvency practitioner, who takes their fees and shares the rest between your creditors.

4. 4

   If you own your home

   Releasing equity

   Usually tried towards the end. If it is not possible, the arrangement is often extended by 12 months instead.

5. 5

   If payments stop

   The IVA can fail

   The protection ends, and the insolvency practitioner can apply to make you bankrupt.

6. 6

   At the end

   The rest of the included debt is written off

   Removed from the public register 3 months after it ends. It stays on your credit file for 6 years from the start.

The monthly payment is based on what you can afford after your essential living costs, including rent or mortgage, energy, and this year’s council tax. The insolvency practitioner takes their fees from those payments, and shares the rest between your creditors.

While the IVA is running, the creditors it binds cannot take action against you for the debts in it, or add interest and charges. That includes your council, for the council tax arrears included.

Can council tax arrears be included?

Yes. Council tax arrears owed when the IVA is approved can be included, and once it is approved your council cannot enforce them. That means no bailiffs and no deductions from your wages or benefits for that debt.

But there are two things to be careful about.

This year’s council tax is not included. It is an ongoing bill, so it has to be paid in full as it falls due, out of your budget. If you fall behind with it during the IVA, the council can take action for the new arrears in the normal way.

Councils often vote against IVAs. A council is a creditor like any other, and gets a vote. Many councils routinely reject IVA proposals, or only accept them if the council tax is paid in full. Where council tax is a large part of what you owe, the council’s vote alone can stop the IVA being approved.

The fees

This is the part that is most often skipped over.

An IVA usually has two fees: one for setting it up, the nominee’s fee, and one for running it, the supervisor’s fee, plus some costs such as the insolvency bond. They are taken out of your monthly payments, so in the early months much of what you pay goes to the insolvency practitioner rather than to the people you owe.

Before you agree to anything, ask for, in writing:

• The total fees, and how they are taken
• How much of your payments will reach your creditors
• What happens to the money you have already paid if the IVA fails

If you own your home

Your home is not usually sold in an IVA, which is one of the main reasons homeowners choose one over bankruptcy.

You will normally be asked to try to release equity towards the end of the IVA, for example by remortgaging, and pay some of it in. If you cannot, the IVA is usually extended by 12 months instead. Ask exactly what the proposal says about your home before you agree to it.

If your circumstances change

An IVA lasts a long time, and life changes. If your income drops, tell the insolvency practitioner straight away. Payments can often be reduced, or paused for a short time, with your creditors’ agreement. If your income rises, you may have to pay more. An inheritance or windfall usually has to be paid into the IVA.

Your credit file and your job

• An IVA stays on your credit file for 6 years from the date it starts
• It is listed on the public Individual Insolvency Register, and comes off 3 months after the IVA ends
• Some jobs, such as in financial services or law, and some professional bodies, have rules about insolvency. Check your employment contract
• The terms usually stop you borrowing more than a small amount without the supervisor’s permission

When an IVA can be the right answer

• You owe several thousand pounds to a number of creditors, such as card companies and loan firms
• You have a reliable amount left over every month
• You own a home, or something else, you want to protect
• Council tax is only a small part of what you owe

When it is not

• Your debt is mostly council tax. Deal with the council directly with an SPA.
• You have very little left each month. A Debt Relief Order may fit better, and it is free.
• You could clear the debts in a few years anyway.
• You are being offered one by a firm that has not first asked what you can afford, or has not explained the alternatives.

Get free advice first

Free, independent debt advice is available from organisations that have no financial interest in which route you choose. Get it before you sign anything.

We do not charge for our help. If an IVA is the wrong answer for your council tax, we will tell you, and we can put an affordable arrangement to your council instead.