Individual Voluntary Arrangement (IVA) Explained: Guide for England and Wales

An IVA is the procedure most people reach for when they have real income, real personal debt, and need to keep their name off the bankruptcy register.

It’s a court-recognised compromise between a debtor and unsecured creditors, supervised by a licensed insolvency practitioner, and it sits in a different part of the Insolvency Act 1986 to anything that liquidates a company.

That confusion costs directors money: company directors with personal debts often look up IVAs and assume their company can use one. It cannot.

In our IVA casework, the same questions keep coming up: what an IVA actually covers, who qualifies, what the IVA costs in real money, what the IVA does to your credit file and your director status, and where bankruptcy or a DRO would suit you better.

The 75% creditor-approval threshold, the 5-year payment term, and the bankruptcy fallback under s.276 IA 1986 are the three numbers most advice sites skip; we lead with them.

What an Individual Voluntary Arrangement Actually Covers

An IVA is governed by Part VIII of the Insolvency Act 1986 (sections 252-263). It is a formal, court-recognised arrangement between an individual debtor and their unsecured creditors, supervised by a licensed insolvency practitioner. The IP acts first as nominee while we draft the proposal, then as supervisor once creditors approve it.

The unsecured debts brought into the arrangement typically settle at 30-50p in the pound over a 5-year contribution term.

Secured debts (your mortgage, asset finance, hire-purchase agreements) normally sit outside the IVA and continue under their own contracts: the IVA cannot affect the lender’s security unless that lender agrees. So do student loans, child maintenance, criminal fines and family-court arrears.

The IVA binds the unsecured creditors who were entitled to vote on it, including any who would have been entitled if they had received notice. It does not cover secured debts or the excluded debts listed above.

Confusing an IVA with a CVA can waste weeks and legal cost. The Company Voluntary Arrangement under Part I IA 1986 is the corporate equivalent; it compromises a company’s debts. The IVA does the same job for an individual, or a sole trader operating outside a limited company.

If your debts are in the company’s name, the IVA does not help you; if your debts are in your own name (including PG-secured ones the lender has called on), the IVA may.

Who Qualifies for an Individual Voluntary Arrangement

Three operational tests determine whether an IVA fits:

1. Sustainable income. You need a regular surplus, typically £80 or more per month after essential expenditure, to make the contribution work over 5 years. The Standard Financial Statement format used by StepChange and Money Helper sets the affordability template most IPs work from.
2. Multiple unsecured creditors. You need at least two unsecured creditors and total qualifying debts typically of £10,000 or more. Single-creditor situations work better as direct negotiation.
3. Cooperation potential. Approval needs at least 75% by value of the creditors who vote, under r.15.34 of the Insolvency (England and Wales) Rules 2016, and the proposal fails if more than half by value of the creditors who are not connected to you vote against it. If a single creditor holds more than 25% of the debt being voted and votes against, the IVA will be rejected.

The DRO (Debt Relief Order under Part 7A IA 1986) is a separate route for debtors who do not qualify for an IVA: total debts under £50,000, total assets under £2,000, no vehicle worth £4,000 or more, and monthly surplus under £75.

The DRO is free to apply for, runs for 12 months, and writes debts off if your situation does not improve. If your numbers fit the DRO, it is almost always cheaper than an IVA.

If they do not, the IVA is the next step up.

The Real Consequences of an Individual Voluntary Arrangement

Three consequences matter, and they are not the ones most articles emphasise.

Public register. Your name appears on the Individual Insolvency Register under r.11.14 of the Insolvency (England and Wales) Rules 2016 once the IVA is approved. The entry stays visible for the full term and for 3 months after completion. Anyone; including future landlords, lenders or employers; can search the register.

Credit file. The IVA appears on your Experian, Equifax and TransUnion files for 6 years from the start date. “Settled” status after completion improves the file slowly, but defaults registered before the IVA remain visible the full term. New lending during the IVA is heavily restricted: most mainstream lenders refuse credit applications outright.

Director status. This is the difference that drives the decision for directors. An IVA does not trigger automatic disqualification. Bankruptcy, a Debt Relief Order and the related restrictions orders do, under s.11 of the Company Directors Disqualification Act 1986.

The law does not stop you acting as a director during an IVA, but check your company’s articles first: the standard model articles end a director’s appointment automatically when they make an arrangement with their creditors, so you may need the articles changed or to be reappointed.

You may, however, find that banks and suppliers see the IVA on credit checks and behave as if you were disqualified; the practical effect can sit somewhere between “no impact” and “treated as bankrupt” depending on the sector.

How the IVA Process Runs, Step by Step

The IVA process compresses into seven steps over roughly 8-12 weeks before payments begin:

1. Initial diagnostic. Free first call with a regulated IP. Most IVA firms offer this without obligation. Cost-of-fit assessment, alternative-route check.
2. Nominee instruction. £500-1,500 typical fee, paid from the first month’s contributions or up-front depending on firm. Nominee prepares the proposal under SIP 3.1 (Statement of Insolvency Practice 3.1).
3. Optional interim order under s.252 IA 1986. While it is in force, creditors cannot take enforcement action or start proceedings without the court’s permission. Rare for SMEs but valuable when bailiff or charging-order action is imminent.
4. Creditors’ decision procedure under the Insolvency (England and Wales) Rules 2016. Usually a virtual meeting or a vote by correspondence. Approval needs 75% by value of the creditors who vote, and fails if more than half by value of the creditors not connected to you vote against.
5. Approval + supervisor appointment. Same IP who acted as nominee usually continues as supervisor. The 5-year payment term starts.
6. Annual review + supervisor reports. Income re-checked annually; contributions adjusted if circumstances change materially.
7. Completion certificate + register removal 3 months later. Compromise crystallises; remaining unsecured balances written off.

Falling behind during the 5-year term puts the IVA in breach. Under the standard terms, that usually means arrears equal to about three months’ contributions. If the breach is not put right, the supervisor can end the IVA. Under s.276 IA 1986, the supervisor can petition for the debtor’s bankruptcy, and the court can make the order if it is satisfied the debtor failed to keep to the IVA.

Make sure you understand this fallback before you sign up. Missing payments on an IVA is not a soft default — it is the route into Part IX bankruptcy.

Costs and Fees on an Individual Voluntary Arrangement

IVA fees are paid out of the monthly contributions, not up front. The split is:

SIP 9 (Statement of Insolvency Practice 9) requires the IP to explain how their fees are worked out. In an IVA the fees are set out in the proposal that creditors approve. Ask for the SIP 9 schedule before instructing. Most firms include it in their initial proposal pack; some need to be asked.

On a £200/month contribution × 60 months = £12,000 total contributions, fees of roughly £3,000-4,500 leave £7,500-9,000 distributed to creditors. On £30,000 of unsecured debt, that’s a settlement at 25-30p in the pound; typical IVA economics.

Individual Voluntary Arrangement vs the Alternatives

The four personal-insolvency routes line up on different debt levels and income profiles:

The DMP (Debt Management Plan) route is the informal alternative; typically charity-managed through StepChange, National Debtline or Citizens Advice. It has no statutory effect: creditors can withdraw at any time, pursue CCJs, and add interest unless they agree to pause it. It works for stable situations with cooperative creditors but offers no protection.

Bankruptcy under Part IX IA 1986 is faster (12-month auto-discharge under s.279) and cheaper to start than an IVA, but s.336 IA 1986 puts the family home at risk; the trustee can apply to sell the family home, and after the first year the court will normally order a sale unless the circumstances are exceptional or someone (often a spouse) buys out the bankrupt’s share.

The IVA preserves home equity in nearly all cases.

Common Misunderstandings About Individual Voluntary Arrangements

Three misconceptions cost directors money:

“An IVA disqualifies me as a director.” False. Section 11 of the Company Directors Disqualification Act 1986 bars you from acting as a director during bankruptcy, a Debt Relief Order or a related restrictions order, but not during an IVA.

The law does not disqualify an IVA debtor, but many companies’ articles end a director’s appointment when they enter an IVA, so check the articles first. Some boards may treat IVAs as a soft disqualification because of credit-check visibility, but the law does not.

“An IVA wipes out all my debts.” False. The IVA compromises the unsecured debts of creditors entitled to vote, including creditors who were left off the list or did not get notice. Secured debts (mortgages, asset finance, HP) stay outside unless the lender agrees, and student loans, child maintenance, criminal fines, court-ordered family payments and most regulatory penalties are excluded.

An unsecured creditor left out of the proposal is still bound by the IVA, so we list every creditor when we draft it.

“I can hide assets from the IVA.” False, and dangerous. The law requires full disclosure of your assets and income, and giving false information to get an IVA approved is a criminal offence (s.262A IA 1986). Section 262 IA 1986 gives creditors a challenge route if the proposal omits material assets.

Practical reality: nominees cross-check bank statements against declared income, check Land Registry for property, check Companies House for directorships. Concealment typically surfaces during the annual review and can lead to a bankruptcy petition and order under s.276.

Your Next Step on an Individual Voluntary Arrangement

The five-step preparation sequence:

1. Gather your numbers. Six months of bank statements, complete debt list (creditor + balance + secured/unsecured status), income and expenditure breakdown in Standard Financial Statement format.
2. Test against the alternatives. If debts under £50k + assets under £2k + surplus under £75/month, the DRO is cheaper (no fee, against a £500-1,500 nominee fee), but you cannot act as a director while it lasts.
3. Take free advice triage. StepChange (0800 138 1111), National Debtline (0808 808 4000), Citizens Advice (0800 144 8848) are FCA-regulated and free. Charities will tell you if an IVA is the right route without an instruction agenda.
4. Free IP diagnostic call. Regulated IPs offer this industry-wide under s.388 IA 1986 + Insolvency Practitioners Regulations 2005. Verify the licence on the ICAEW register (icaew.com/regulation/find-a-firm) or IPA register (insolvency-practitioners.org.uk).
5. Instruct under SIP 9 disclosed terms. Ask for the SIP 9 time-cost schedule before signing. Get a written summary of the proposal terms before the creditors’ vote.

The free diagnostic call costs nothing and helps you avoid choosing the wrong procedure. Charity advice rules out the procedures that don’t fit; the IP diagnostic confirms the one that does.

FAQs on Individual Voluntary Arrangements