Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement (known as an IVA) is a legally binding agreement between a debtor and his/her creditors. The agreement sets out how creditors will be repaid and normally involves setting up monthly repayments over a specified period. Alternatively, if an asset (such as a property) can be sold, the agreement may specify that the proceeds from the sale will be used as payment. An insolvency practitioner will normally assist in working out what the debtor can afford to repay and how long the IVA should last. The IVA will start if creditors holding 75% of the total debt agree to it. For an IVA to be approved, the IVA proposal must usually offer a higher return to creditors than could otherwise be expected were the debtor to be made bankrupt. Once approved, the IVA will apply to all creditors, including any who voted against it.

For the purposes of an IVA, a ‘debtor’ is taken to mean an individual, sole trader or partner (in a business partnership). It is important to note that an IVA can be cancelled by the insolvency practitioner if the debtor fails to keep up with repayments.

An IVA is an alternative to bankruptcy for a debtor who is in financial difficulty. The main benefit of an IVA is its flexibility and the fact that (unlike bankruptcy) it allows the debtor to retain control of his/her assets. However, they can be expensive and there are other disadvantages associated with IVAs.

This briefing paper provides an overview of IVAs. It includes information on who might be eligible for an IVA; the IVA process; and the advantages and disadvantages associated with IVAs. It should be noted that IVAs apply only to England, Wales, and Northern Ireland. Scotland has its own law on personal insolvency, including the option of a Protected Trust Deed.