Individual voluntary arrangements (IVAs)

 October 2017

Fact sheet no. BDL13 EW Individual voluntary arrangements (IVAs)

This fact sheet tells you how an individual voluntary arrangement (IVA) can be used to deal with your debts.

Use this fact sheet to:

  • find out what an IVA is and if you may be eligible to apply for an IVA to help you deal with your debts;
  • see when we can help you to apply for an IVA;
  • understand how an IVA is set up; and
  • find out the main advantages and disadvantages of an IVA.

What is an individual voluntary arrangement (IVA)?

There is an alternative to bankruptcy called an ‘individual voluntary arrangement’ (IVA). This is a legally-binding arrangement to pay an agreed amount off your debts over a set period. Any unpaid parts of the debts that were included in the IVA are written off when the arrangement is completed. An IVA can be set up in a number of different ways. It can either be a monthly instalment plan over a fixed term (normally five years), or a short term arrangement if you have a lump sum to put forward. Some IVAs are a mixture of both instalments and a lump sum.

An IVA could help you to deal with your debts if you are:

  • a sole trader or partnership and have business or personal creditors, or both; or
  • the director of a limited company and have personal debts that you cannot afford to pay in full.

An IVA cannot be used to deal with the debts of a limited company. Contact us for advice about the options available to a limited company to deal with its debts.

An IVA can be a very effective way to deal with your debts. However, there are both advantages and disadvantages to IVAs. These are discussed later in this fact sheet. Think about these carefully and contact us for advice before deciding whether to go ahead with an IVA.

The Business Debtline IVA panel

Business Debtline can refer you to an insolvency practitioner (IP) from our special panel. After reading this fact sheet, if you think that an IVA is the best option for you, see the later section Finding an insolvency practitioner.

Do I have to use an insolvency practitioner recommended by Business Debtline?

You do not have to use one of the IPs that we work with. If you prefer, we can give you advice on how to find one yourself.

Is an IVA suitable for me?

   

Extra advice:

benefit-only income

If your only income is state benefits, think very carefully about the options to deal with your debts. An IVA may not be a suitable option. Contact us for advice.

An IVA may be a suitable option for you if you have:

  • money available every month to pay towards your debts; 
  • a lump sum or assets that could be included; or
  • a combination of spare money each month and assets or a lump sum.

Information:

self-help pack

We have a self-help pack which explains how to complete a business and household budget sheet to work out how much spare income you may have to pay into an IVA.

Contact us for a copy on 0800 197 6026 or see www.businessdebtline.org.

For an IVA to be a realistic option, you would normally need to have:

  • at least three debts totalling £7,000 or more;
  • two or more different creditors;
  • at least £50 per month spare income after your essential bills; and
  • be able to pay back at least 2p for every £1 of your debt.

These criteria are a guide only. You may still be able to consider an IVA even if your circumstances fall outside of these guidelines. Contact us for advice.

We may be able to help you set up an IVA, using an insolvency practitioner from our panel. See the later section Finding an insolvency practitioner.

If you and your domestic partner meet these criteria by taking into account your joint circumstances, you may be able to do an IVA together. This is sometimes known as an ‘interlocking IVA’. Contact us for advice.

Is an IVA suitable if I am a member of a partnership?

If you are a partner in a partnership an IVA may be an option for you, but it must take into account your personal liability for debts that the partnership owes. These creditors could still take action against the partnership itself, or against other partners.

If you and your business partner(s) have personal debts as well as debts owed by the partnership, you could propose an arrangement to deal with all of these at the same time. This type of arrangement is more complicated. Contact us for advice.

What debts can be included in an IVA?

Extra advice:

hire-purchase and lease agreements

Be careful if you have a hire-purchase or lease agreement you want to include in your IVA.  Check your agreement carefully to see if there is a clause which allows the creditor to end the agreement if you enter into an IVA, and contact us for advice.

You can include most types of debt in your IVA proposal, but bear in mind that your creditors may object. See the next section IVA procedure. You can include priority debts such as business rates arrears, tax debts, fuel debts and so on. However, you cannot include:

  • maintenance, or arrears of maintenance, ordered by a court;
  • Child Support Agency or Child Maintenance Service arrears;
  • magistrates’ court fines;
  • mortgage, secured loan or rent arrears unless your lender or landlord agrees (which is unlikely); and
  • student loans (for IVAs made on or after 6 April 2010).

Warning:

giving incomplete information

If you do not give complete information to your IP about your assets and debts you could be committing a criminal offence.

   

If you are unsure what debts you can include in your IVA, contact us for advice.

IVA procedure

Information:

no interim order

You can put forward an IVA proposal without applying for an interim order first. This may reduce your costs but means your creditors can still take enforcement action against you until the IVA is agreed.

An IVA has to be set up by an insolvency practitioner. An insolvency practitioner is usually an accountant or solicitor who is authorised to set up IVAs. Once an IP has agreed to make an IVA proposal for you, they can apply to the county court for an ‘interim order’. This stops your creditors from starting bankruptcy proceedings against you. It also stops any other enforcement action without the court’s permission whilst the interim order is in force. 

  • The IP sends the IVA proposal to your creditors and arranges a formal meeting called a ‘creditors’ meeting’. 
  • Check with the IP and make sure that all your creditors have been contacted. If a creditor comes to light after the IVA has been agreed and they had no notice of the meeting, they can claim the amount they would have received if they had been included in the IVA at the start.  
  • At the meeting, creditors have to vote on whether to accept the IVA. Often creditors send their vote to the IP and don’t actually take part in the meeting. 

Extra advice:

debts to HMRC

If HMRC is your biggest creditor, they may vote against your IVA proposal. This may mean that your IVA proposal fails.

  • The proposal has to be accepted by more than 75% ‘by value’ of the voting creditors for it to become legally binding on all your creditors. ‘By value’ means voting creditors who hold more than 75% of your total debt, not the number of creditors you have.
  • This means that if the creditors to whom you owe the highest amount vote against the proposal, the IVA may not go through. 
  • Sometimes creditors will ‘haggle’ about the terms of the IVA and ask you to agree to pay more every month, or include assets you do not want to lose. They may ask you to make payments over a longer period. However, for the IVA to go ahead, your agreement to these changes is needed.
  • If you have a personal or workplace pension that you can claim during the proposed term of your IVA, your creditors may agree to exclude it as an asset. If they don’t agree to this, the pension fund could be at risk. Check the terms and conditions of your IVA agreement and contact us for advice.
  • If the IVA is agreed, your IP will supervise the arrangement and ensure you make the payments. 

Information:

repeat interim order applications

If you have previously applied for an interim order, you have to wait 12 months before you can apply for another interim order. However, you don't usually need one to apply for an IVA.

  • If the IVA does not go through, you are back to the same position as you were in before you made the application.  You will have to negotiate with all your creditors separately. You may also have lost money in fees and costs for the IVA application. Think carefully before you decide what to do next. It may not be a good idea to apply for a new IVA unless your circumstances have changed and you can improve the proposal you made before. Contact us for advice.

IVA protocol

The IVA protocol is a set of voluntary guidelines which many insolvency practitioners follow. The guidelines cover how a straightforward consumer IVA should be put together and how the IP should behave. The protocol has been set up to make the IVA process quicker and simpler for IPs, creditors and for you as the applicant.

The IVA protocol covers the following areas.

  • What the IP should do to check your income and outgoings.
  • That your creditors should normally accept your figures if they fall within the set limits.
  • How any equity in your home should be dealt with (see the next section Effect of an IVA on my home).
  • Your IP should make sure you have had full information on different ways to deal with your debts.
  • What to do when your income and outgoings go up or down, and what should happen if you miss any payments.

Not all IPs use the IVA protocol and, because each IVA can be very different, not all IVAs can follow the protocol. For example, there is nothing in the protocol that says it cannot apply if you are self-employed. However, because your situation is likely to be more complicated than that of someone who is not self-employed, the protocol may only apply in part, or not at all. 

Check whether the IVA protocol will apply to your case before you agree an IVA proposal with your IP. If it does apply, check whether the whole of the protocol applies, or just part of it. If your IP says that your case is not straightforward and you cannot have an IVA that follows the protocol, make sure you understand why. If you are not sure about this, contact us for advice.

Effect of an IVA on my home

The rules described in this section do not apply to buy-to-let properties. If you own one or more buy-to-let properties and you are considering entering into an IVA, contact us for advice.

If you are a home owner, your IP will normally want to include a special section within your IVA proposal called an ‘equity clause’. This means that during the IVA (normally in year four) you would be expected to apply for a secured loan or re-mortgage to pay back some of the debts.  If you cannot do this, your IP may want you to sell your home instead.

However, if your IVA follows the IVA protocol there is some protection. If you are able to re-mortgage or get a secured loan then the repayments should be affordable. You should be left with equity of at least 15% of the value of your share of the property. For example, if you are the sole owner of your property and it is worth £100,000, you should be left with at least £15,000 equity after remortgaging. Also, the new mortgage should finish by the end of your existing mortgage or your state retirement age (whichever is later).

Warning:

secured lending

You need to be careful when thinking about taking out a new mortgage or secured loan. It may be difficult to find a loan from a reputable lender at a good rate of interest because your credit rating may not be good enough.

You must discuss this with your IP and get advice to make sure you can afford the new payments or you could be putting your house at risk. Contact us for advice.

The protocol says that if you are unable to get a re-mortgage or secured loan, you can keep paying instalments under the IVA for an extra 12 months rather than selling your home.  Alternatively, a third party such as a family member or friend could pay a lump sum to the IP. This lump sum would need to be 85% of the value of your share of the property (after the value of your share of any existing mortgages and secured loans has been taken away).

If you are unable to maintain the payments on your IVA there is a risk that you may be made bankrupt, which could result in you losing your home.

Finding an insolvency practitioner

Before deciding to go forward with an IVA, consider all the options available to you for dealing with your debts. See the later section Other options. If you do decide that an IVA is the right option to pay back the money you owe, you will need help from an IP. Business Debtline could refer you to an IP on our special panel, or you could contact an IP directly yourself.         
 

What is the Business Debtline IVA panel?

Business Debtline can refer you to an IP from our special panel. Our panel of IPs have agreed the following.
      
  • You will not be charged up-front fees and you will not be asked to make any payments until the IVA proposal has been agreed by your creditors.
  • You will be able to take further independent advice from Business Debtline whenever you want to.
  • Your IP should keep you fully informed about your IVA and should make sure you fully understand what the IVA will mean for you.

How do I qualify?

If you want to be considered for an IVA under our IP panel scheme, you usually need:
 
  • debts totalling at least £7,000;
  • at least three different debts across at least two different creditors;
  • at least £50 per month spare income after your essential bills; and
  • be able to repay at least 2p in every £1 to your creditors over the term of the IVA.
These criteria are a guide only. You may still be able to consider an IVA even if your circumstances fall outside of these guidelines. Contact us for advice.
 

Extra advice:

changes in income

Even if the income you get from your business changes throughout the year, Business Debtline may still be able to refer you for an IVA. The IP we refer you to may be able to set up an arrangement which allows you to pay an agreed amount each year. This could be in different amounts that you can afford at different times, rather than by equal monthly payments. Contact us for advice.

Extra advice:

lump sum IVAs

If you have less than £50 per month spare income but you have a lump sum that you want to offer your creditors, contact us for advice. Business Debtline may be able to refer you to an IP that can help you set up an IVA using just your lump sum.

What do I do next?

If you are interested in setting up an IVA through Business Debtline, contact us for advice. We will be able to discuss an IVA with you, as well as advising you on what other options you may have for dealing with your debts.

Contacting an IP myself

The Insolvency Service provides a searchable directory of IPs. To view this, go to www.gov.uk and search for ‘find an insolvency practitioner’. The directory gives the contact details of each insolvency practitioner and those of their authorising body. If you are unable to find the directory, contact us for advice.

Extra advice:

companies who charge up-front fees

Be wary of companies who suggest they can put you in touch with an IP if you pay them a fee. These are known as 'ambulance chasers'. You can contact an IP directly without going through another company. Contact us for advice.

Before you agree to use the services of any IP, check their terms and conditions carefully, including what fees may be charged. See the next section IVA charges. Check to see whether they follow the IVA protocol and make sure you shop around different IPs to compare their services and fees.

IVA charges

All IPs will charge fees for setting up and supervising an IVA. Fees vary between different firms, but typical fees can be £4,000 or more. These fees are usually taken from the monthly payment you have agreed you can afford to make to your creditors.

Remember:

check fees

Always check what fees an IP will charge before signing any agreement or starting the process to set up an IVA. You will need to check what the fees cover and whether the IP will charge any up-front fees.

Many IPs will offer an initial free meeting to look at whether an IVA is suitable in your situation. Some IPs will demand an up-front fee before putting forward the IVA proposal. This could mean that if the proposal is refused by your creditors, you will lose the money you have paid to the IP up until that point. Other IPs may still charge you some fees if you start the process but then decide not to go ahead in the end.

You may be asked to pay some form of payment protection insurance to cover you against death, unemployment and so on. Your IP should tell you about any insurance cover they have arranged and how much this will cost you. It will usually be built into the initial fees you have to pay to your IP.

If you use an IP from Business Debtline’s special panel, we will receive part of the fee they will charge you. This is for the work we have carried out collecting information about your circumstances. We will use any payments we receive to support our ongoing charity work of giving help and advice to people with debt problems.

Changes of circumstances

Information:

IVA protocol

If your IVA follows the IVA protocol and your circumstances change, your IP may allow you to make reduced payments or take a payment break. Contact us for advice.

If your circumstances change, you must tell your IP. If you are unable to keep up with your payments, your IP can ask the creditors to accept lower payments and agree a ‘modified’ IVA. The IP may charge you a fee for doing this. 

If you cannot make any payments, or your creditors refuse to accept lower payments, your IVA may fail. If this happens, the IP may allow you to consider other options. There may be additional fees to pay to the IP if your IVA fails. They can take court action to get these back from you.

The IP is able to petition for your bankruptcy, but this will not happen in all cases. If your IP decides not to make you bankrupt, then your creditors can take action against you instead. It is very important to agree payment arrangements with each of your creditors separately to stop this happening.

Advantages of an IVA

Extra advice:

bank accounts

Check the terms and conditions of your bank account to make sure that it will not be affected by an IVA in any way.

  • Repayments stop at an agreed date and you will usually pay less than the full amount you owe.
  • Bankruptcy can lead to the loss of your personal and business assets and may mean you have to stop trading.  An IVA may mean that you can keep certain essential assets and keep your business running.
  • You may have access to a large lump sum and want a formal arrangement with your creditors to accept the lump sum and write off the rest of the debts.
  • You will not automatically lose your house or other assets. See the earlier section Effect of an IVA on my home.

Disadvantages of an IVA

  • The income you draw from your business may vary throughout the year. This can make it difficult to keep to the payments under the IVA.
  • If you do not keep to the terms of the IVA then the IP or your creditors can take further action against you, for example by making you bankrupt.
  • If creditors do not accept the IVA proposal you are back to square one and your creditors can carry on trying to pursue you for your debts.
  • If you paid an up-front fee for your IVA and it is not accepted then you will have lost the fee and may be in a worse position than when you started.
  • If you own your house, the IP and creditors may make you agree to re-mortgage your home as part of the IVA. If you are unable to do this you may lose your home. See the earlier section Effect of an IVA on my home.
  • Information:

    statements and notices

    Under the rules of the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format.  This will happen even when you are in an IVA but should stop once your IVA is completed.  Don’t worry. This does not mean that there is a problem with your IVA.  If you receive other letters demanding payment, you should take this up with your insolvency practitioner or contact us for advice.

  • If you rent your home, check the terms and conditions of your tenancy agreement. It may say that your landlord can end your tenancy if you enter into an IVA. Even if your tenancy agreement does say this, your landlord may choose not to end your tenancy, especially if you are up to date with your rent payments.
  • There is a risk that the IVA is agreed on the basis of monthly payments that you cannot afford long term. You must be very careful that the payments are set at a realistic amount in the first place.
  • If your circumstances change and you can no longer afford the payments, your IVA may end if the IP cannot persuade the creditors to accept a new agreement.
  • The IVA will be recorded on your credit reference file for six years and can affect your ability to get further credit. See the next section IVA registers for more information.
  • When you set up an IVA, you will need to open a basic bank account which is separate from all your debts. A basic account does not offer any credit facilities, such as an overdraft. Some banks may not allow you to continue to operate a basic bank account whilst you are in an IVA. This applies to business and personal bank accounts. Contact us for advice.

IVA registers

Public register

Records of IVAs and FTVAs are kept on a public register called the Individual Insolvency Register. You can search this for free. Go to www.gov.uk and search for ‘Individual Insolvency Register’. Alternatively, you can search the register by visiting your local official receiver’s office. You can find out the location of your nearest official receiver’s office by checking your local phone book or calling the Insolvency Service on 0300 678 0015. Your IVA or FTVA will remain on the register until it is completed or terminated.

Credit reference agency files

Records of IVAs are normally held on credit reference agency files for six years from the date the IVA began. This can significantly affect your ability to get further credit. This can make it difficult for you to continue running your business if you rely on using credit facilities. If the IVA lasts longer than six years, it will remain on your credit file until the date the IVA ends. The IVA is marked ‘complete’ by the credit reference agency when they are informed of this by the Insolvency Service. Send a copy of the letter from your IP to the three credit reference agencies so that your credit file is updated. 

You may continue to find it difficult to get credit even after the IVA has been removed from your credit file. This is because some lenders may ask if you have ever had an IVA or been bankrupt in the past. This will depend on the lender’s policy.

Complaints about insolvency practitioners

Put your complaint in writing to the IP. Set out the facts as clearly as you can. There are additional guidelines that an IP should follow when dealing with your IVA. Contact us for advice about these.

Say why you are not happy and what you want them to do about it. Include any evidence that you feel supports your complaint. If you are not happy with the IP’s response, you can usually send your complaint to the Insolvency Service. The Insolvency Service will then pass your complaint onto the IP’s authorising body.

The IP’s authorising body cannot change the terms and conditions of your IVA or any decision your IP has made. However, they can use the information you provide in your complaint to help them decide whether they should take further action against the IP. Also, a complaint will not stop any bankruptcy action being taken against you if your IVA has failed.

For more information about making a complaint, see the Insolvency Service's website. Go to www.gov.uk and search for ‘complain about an insolvency practitioner’. Alternatively, contact us for advice.

Other options

Information:

self-help pack

We have a self-help pack which explains how to create a business and household budget sheet and the options available to deal with your debts. Phone us for a copy on 0800 197 6026 or see www.businessdebtline.org.

There may be alternative options for you to deal with your debts. 

For example, you may wish to consider a debt-management plan. This is an informal arrangement which involves paying your surplus income to a debt-management company. The debt-management company then negotiates reduced repayments with your creditors.

Bankruptcy could also be suitable for you. Bankruptcy is an official order which ends liability for most debts. However, it involves your assets being sold to raise money to pay to your creditors and may make it difficult for you to continue being self-employed. 

Each option has advantages and disadvantages. It is important to consider these carefully before you make a decision about which option is best for you. Contact us for advice.