Are you considering an IVA (Individual Voluntary Arrangement) to help you deal you’re your debts? Understanding both the IVA pros and cons is crucial before making a final decision.
At IVA Expert, we will guide you with clear explanations and expert advice. We will help decide if an IVA is right for you so you can make the best decision for your financial future.
Use this article to find out more about the pros and cons of an IVA.
What is an IVA?
An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors. It enables you to settle your unsecured debts over a fixed period of time.
You will normally make a monthly payment into the Arrangement for five to six years. At the end of this time, your IVA is competed and any remaining debt is written off - provided you’ve kept up with the agreed payments and other terms.
IVAs are usually suitable for people with multiple debts totalling at least £7,000. In addition, you need to be able to afford to make a regular monthly payment of at least £100.
You can put most types of debts into the Arrangement including any tax owed to HMRC, CCJs, utility and council tax arrears. The solution is also particularly suited to home owners as it gives legal protection to your property.
The Pros of an IVA
Choosing an IVA can offer several significant benefits, especially when compared to an informal Debt Management Plan, going bankrupt or other IVA alternatives. Here are the main pros to choosing IVA as your debt-relief option:
1. Legal Protection from Creditors
Once your IVA is approved, creditors can no longer:
- Chase you for payments
- Add interest or charges to your debts
- Take court action (including CCJs or bailiff involvement)
This legal protection can provide enormous relief and stability while you focus on repaying your debts.
2. Unaffordable Debt Written Off
One of the main advantages of an IVA is that any included debts which remain unpaid at the end of the agreement are written off.
This means that once you have made all your required payments, the Arrangement is completed and you will be debt free.
You will not be paying your debt for ever. This is unlike a Debt Management Plan where you are required to continue making your payments until your debts are paid in full.
3. Monthly Payments You Can Afford
The monthly payments you make into your IVA are realistic and affordable - rather than the unmanageable amount your creditors are demanding you pay.
They are based on your disposable income. In other words, the money left over from your income after all of your reasonable living expenses have been deducted. This means you will always have sufficient money to pay all your household essentials every month.
You’ll make one monthly payment, simplifying your finances and helping you regain control. This is another major pro of an IVA, allowing you to plan out your payments in a way that suits you.
4. Protection for your Home and Assets
One of the key advantages of an IVA is the legal protection it gives to your house. You do not have to sell your home.
If you start your IVA after April 2025, then in most circumstances, you will not be required to release equity from your property.
In most cases, your car is not at risk regardless of its value.
This is in direct contract to bankruptcy where your home and car may be at risk.
5. Interest and Charges Stopped
Once your IVA begins, all interest and charges on your debts are frozen. This prevents your debt from getting any larger.
As long as you maintain your agreed payments, any money you still owe at the end of the agreement is simply written off.
6. Professionally Managed Process
Your IVA will be managed by an Insolvency Practitioner (IP) who will deal with your creditors on your behalf. You do not have to conduct any direct negotiations with your lenders yourself.
7. Private Solution
An IVA is a private solution. It would be extremely unusual for anyone to find out that you are in the Arrangement unless you choose to tell them. Neither your landlord nor employer will be told.
The fact you are in the Arrangement is recorded on the Individual Insolvency Register (IIR) which is a public record. However, most people are not even aware of the existence of this.
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The Cons of an IVA
While IVAs offer many benefits, it’s important to understand the potential downsides so you can make an informed choice.
The main con’s of the IVA debt solution which you need to be aware of are listed as follows:
1. Your Credit Rating is Negatively Affected
The fact you have started an IVA will be recorded on your credit file. The record will remain for six years (from the start date). This will make it much harder for you to pass credit checks and get new forms of credit.
In general, your credit rating will not start to improve until the record is removed from your credit file (6 years from the start of your IVA).
Remember, once you are in an IVA, you are not allowed to take out new forms of credit without first getting the agreement of the company managing your IVA.
It is possible to get a mortgage after an IVA. However, you will normally need to wait until the record comes off your file (after 6 years) to access the best interest rates.
2. Not All Debts Are Included
Most unsecured debts can be included in an IVA, such as:
- Credit cards
- Loans
- Overdrafts
- HMRC debt
- Utility bill and Council Tax arrears
- Payday loans
But some debts cannot be included. These include:
- Student loans
- Court fines
- Child maintenance arrears
- Mortgage debt (unless your property has already been repossessed)
- Car finance (unless you are happy to give up the car)
If you have any of these, you will need to make a provision in your agreed living expenses budget to continue paying them.
3. Homeowners May Need to Release Equity
If you start your IVA after April 2025, you may not have to release equity from your property as part of your IVA agreement.
However, where your IVA started before April 2025, you may still be required to release available equity in the 5th year. This would be through a remortgage or secured loan. If you’re unable to release available equity, your IVA may be extended by 12 months instead.
There are some circumstances where you might still be required to release equity from your home even if starting an IVA after April 2025. An example of this is where the amount of equity you have is very large.
4. Risk of Failure
If you fail to keep up with your IVA payments or do not meet any of the other terms of the agreement, your IVA will be at risk of failure.
If your IVA does fail, you will still be liable to pay the majority of the debt you originally owed. Your creditors will re-start enforcement action against you to collect what you owe.
After your IVA fails you will normally need to implement another debt solution.
5. Inflexible Solution
An IVA is a formal and legally binding agreement. Once it is agreed, you are committed to making regular payments.
If your income improves during your IVA, your payments will increase. This does not reduce the length of your IVA. It simply means you pay back more of your debt overall.
If your income falls, it might be possible to reduce the monthly payments you make. However, such a reduction will almost certainly add to the number of payments. You will normally have to pay for an extra 12-24 months.
If you get a windfall during your Arrangement (such as an inheritance) you have to pay this into your IVA. You can’t decide to use the money for anything else.
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IVA Pros and Cons – In Summary
Pros:
- Legal protection from creditors
- Unpaid debt is written off after completion
- Affordable, fixed monthly payments
- Stops interest and charges
- Keep your home and assets
Cons:
- Affects your credit rating for six years
- Not all debts are included
- Homeowners may need to release equity
- Risk of failure if payments are missed
- Limited flexibility
Is an IVA suitable for you?
An IVA could be the right solution for you if:
- You owe over £7,000 in unsecured debt to two or more creditors
- You have a regular income (employment, self-employment, long term benefits or pension)
- You can afford to pay at least £100 per month
- You owe money to HMRC and or have CCJ debts
- You wish to avoid bankruptcy and protect your assets
If this applies to you, an IVA might offer the protection and structure you need to get back on track.
When an IVA Might Not Be the Right Choice
An IVA may not be suitable for you if:
- You have little or no disposable income
- Your income is irregular or unpredictable
- You owe less than £7,000 in total
- You’re unlikely to be able to maintain payments for 5–6 years
- Your debts are mostly non-qualifying debts (e.g. student loans or court fines)
In these cases, alternatives such as a Debt Relief Order (DRO), Bankruptcy, or a Debt Management Plan (DMP) may be better options. Our IVA experts can talk you through all of these alternatives and help advise you on the best route.
IVA Expert – Explaining the IVA Pros and Cons in relation to your specific circumstances
At IVA Expert, we specialise in helping you understand the right option for dealing with your debt.
We will provide you with a free, confidential consultation to assess whether an IVA is right for you.
We will explain the IVA pros and cons in the context of your specific situation to make sure you are making the correct choice.
- No pressure, no jargon – just honest, expert guidance
- Authorised and Regulated by the FCA for your peace of mind
- Trusted by thousands across the UK
Find Out More About IVA Pros and Cons and if an IVA is Right For You
If you’re unsure whether how the IVA pros and cons relate to your specific circumstances, don’t worry, help is just a phone call away.
Our experts have been advising people on how to best get out of debt for over 25 years.
Call IVA Expert today on 0800 180 8013 or fill in our simple online form to receive clear, tailored advice on your next steps.
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