Individual Voluntary Arrangement (IVA) Explained: UK Debt Solution Guide

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 252-263G). 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; sit outside the IVA and continue under their own contracts. So do student loans, child maintenance, criminal fines and family-court arrears.

The IVA is precise: it compromises specific creditors who get notice and vote, not everything you owe.

Directors we see who confuse IVA with CVA waste weeks of 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 requires 75% of creditors by value of admitted proof under r.15.34 of the Insolvency (England and Wales) Rules 2016. If a single creditor holds more than 25% of your unsecured debt and is hostile, the IVA fails before it starts.

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 £30,000, total assets under £2,000, monthly surplus under £75. The DRO costs £90, 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.12 of the Insolvency Rules 2016 from the date 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; only bankruptcy under s.11 of the Company Directors Disqualification Act 1986 does. You can continue as a director through an IVA.

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.256 IA 1986. Court fee £160. Creates an immediate standstill on enforcement actions during proposal preparation. Rare for SMEs but valuable when bailiff or charging-order action is imminent.
4. Creditors’ decision procedure under r.15.4 Insolvency Rules 2016. Virtual or correspondence vote. 75% by value approval required.
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.

Failure during the 5-year term, typically two consecutive missed payments, triggers a supervisor’s certificate of breach. Under s.276 IA 1986, the supervisor can petition for the debtor’s bankruptcy, which the court grants on the IVA failure alone.

We rarely see directors warned about this fallback before they 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:

Fee	Typical amount	When charged
Nominee fee	£500-1,500	Proposal preparation
Supervisor fee	10-15% of distributions	Throughout 5-year term
Disbursements	£150-400 total	Statutory advertising, Bond of Indemnity, court fees
Total to creditors	~£60-75% of contributions	After fees

SIP 9 (Statement of Insolvency Practice 9) requires the IP to disclose remuneration basis under r.18.16 of the Insolvency Rules 2016. 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:

Route	Best fit	Approval	Cost	Term	Director impact
DRO	Under £30k debt, £2k assets, £75/month surplus	Official Receiver	£90	12 months	No disqualification
IVA	£10k+ debt, sustainable income	75% creditors by value	Nominee + supervisor fee from contributions	5 years	No disqualification
DMP	Variable	Informal	Free via charities	Until cleared	No disqualification
Bankruptcy	Unmanageable debt, no income to pay	Court	£680 + £130 deposit	12 months auto-discharge	s.11 CDDA 1986 auto-disqualification

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 for sale after 12 months unless an interested party (typically a spouse) buys out the beneficial interest. 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 triggers automatic disqualification only on bankruptcy, not on IVA. An IVA debtor can continue as a director throughout. 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. Only unsecured debts that are listed in the proposal and survive the creditor vote are compromised. Secured debts (mortgages, asset finance, HP), student loans, child maintenance, criminal fines, court-ordered family payments and most regulatory penalties are excluded.

Any debt the proposal does not specify continues unaffected.

“I can hide assets from the IVA.” False, and dangerous. Section 252 IA 1986 requires full disclosure of assets and income. 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 converts the IVA to bankruptcy 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 £30k + assets under £2k + surplus under £75/month, the DRO is cheaper (£90 vs £500-1,500 nominee fee).
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.

In our casework, the free diagnostic call is the cheapest insurance directors buy against the wrong-procedure choice. Charity advice rules out the procedures that don’t fit; the IP diagnostic confirms the one that does.

FAQs on Individual Voluntary Arrangements