IVA Pros and Cons - Advantages and Disadvantages

Understanding IVA Advantages and Disadvantages

Before entering an Individual Voluntary Arrangement, it's crucial to understand both the benefits and drawbacks. An IVA can be life-changing, but it's not suitable for everyone.

Advantages of an IVA

1. Legal Protection from Creditors

Once your IVA is approved, creditors cannot:

Take legal action against you
Add further interest or charges
Contact you directly for payment
Make you bankrupt (unless you breach the IVA)

This immediate relief can significantly reduce stress and anxiety about debt.

2. Write Off Remaining Debt

After completing your IVA (typically 5-6 years):

All remaining qualifying unsecured debt is legally written off
You're no longer liable for those debts
Average write-off is 60-70% of original debt

Example: If you owe £30,000 and repay £12,000 over 5 years, the remaining £18,000 is written off.

3. Affordable Monthly Payments

IVA payments are based on what you can genuinely afford:

Calculated from disposable income (income minus essential expenses)
More manageable than multiple creditor payments
Reviewed annually - can decrease if circumstances worsen
Fixed for the term (creditors can't demand more)

4. Keep Your Home

Unlike bankruptcy, an IVA generally allows you to:

Remain in your home
Avoid forced sale (in most cases)
Release equity in year 5 or extend the IVA by 12 months instead

Note: You may need to attempt equity release in the final year if you're a homeowner.

5. One Simple Monthly Payment

Instead of juggling multiple creditor payments:

Pay one amount to your Insolvency Practitioner
They distribute to creditors
Reduces administrative burden
Prevents missed payments

6. Avoid Bankruptcy

For many, an IVA is preferable to bankruptcy:

Less severe impact on employment
More control over assets
Better public perception
More predictable outcome

7. Interest and Charges Frozen

From IVA approval:

No more interest accumulation
No additional charges or fees
Debt amount is fixed
Makes debt manageable

8. Suitable for Self-Employed

Unlike some debt solutions:

Self-employed individuals can enter IVAs
Business can continue operating
Flexibility for variable income
Annual reviews accommodate income changes

9. Confidential Process

While on a public register:

Most employers won't check
Friends and family need not know
Less public than bankruptcy
No publication in newspapers (unlike bankruptcy)

10. Clear End Date

You know exactly:

When your IVA will end (typically 60-72 months)
Total amount to be repaid
When you'll be debt-free
Light at the end of the tunnel

Disadvantages of an IVA

1. Significant Credit Impact

Your credit file will show:

IVA marker for 6 years from start date
Seriously damages credit score
Difficulty obtaining credit during IVA
Higher interest rates post-IVA

Impact timeline:

Years 0-6: IVA on credit file
Years 6-8: Rebuilding credit score
Years 8+: Credit normalizing

2. Long-Term Commitment

IVAs require:

5-6 years of consistent payments
Strict budgeting throughout
Regular reviews and compliance
Cannot be easily canceled

Consider: Can you commit to 60-72 monthly payments?

3. Costs and Fees

IVA fees typically include:

Nominee fee: £1,000-£2,000 (taken from first payments)
Supervisor fee: 15-20% of each payment
Total fees: Often £5,000-£8,000 over IVA term

Example: £200/month payment might break down as:

£40 to IP fees (20%)
£160 to creditors (80%)

These fees are built into your payment, not extra charges.

4. Equity Release Requirements

If you own property:

Must attempt equity release in year 5
Remortgage to release equity (if possible)
If unable, typically extend IVA by 12 months
Can be stressful and complex

5. Income Windfalls

Any significant income increases or windfalls:

Must be reported to your IP
May increase IVA payments
Bonuses, overtime, inheritance affected
Reduces flexibility

Rule of thumb: Any income increase above living costs goes to creditors.

6. Failed IVA Consequences

If your IVA fails:

All payments made are kept by creditors
No debt is written off
Creditors can pursue you again
IP may petition for bankruptcy
Back to square one

Failure rate: Approximately 25-30% of IVAs fail.

7. Public Record

Your IVA appears on:

Individual Insolvency Register (public)
Searchable online
Visible for 3 months after completion
Could affect certain professions

8. Restrictions During IVA

While in an IVA, you cannot:

Borrow more than £500 without IP permission
Act as a company director (in many cases)
Work in certain financial services roles
Apply for credit freely

9. Limited Flexibility

IVAs are rigid:

Cannot choose which creditors to include
All unsecured creditors must be included
Cannot pay extra to favorite creditors
Cannot end early without full payment

10. Annual Reviews

Every year:

Provide updated income/expenditure
Prove expenses with evidence
Payments may increase if income rises
Intrusive process for some

11. Not Suitable for All Debts

IVAs don't include:

❌ Secured debts (mortgage, car finance)
❌ Student loans
❌ Court fines
❌ Child maintenance
❌ Debts from fraud

These must still be paid separately.

12. Joint Debts Complications

If you have joint debts:

The other person remains fully liable
Can damage relationships
Co-borrower pursued for full amount
Needs careful consideration

Comparison Table: IVA vs Main Alternatives

Factor	IVA	Bankruptcy	DRO	DMP
Debt write-off	✅ Yes (after 5-6 years)	✅ Yes (after 12 months)	✅ Yes (after 12 months)	❌ No
Duration	5-6 years	12 months	12 months	Until paid in full
Keep home	Usually ✅	Usually ❌	✅ (if no equity)	✅
Credit impact	6 years	6 years	6 years	While active
Monthly cost	£80-100+	N/A	£0	Varies
Creditor protection	✅ Yes	✅ Yes	✅ Yes	❌ No
Public record	✅ Yes	✅ Yes	✅ Yes	❌ No
Suitable for self-employed	✅ Yes	Limited	❌ No	✅ Yes

Who Should Choose an IVA?

An IVA is typically best for those who:

✅ Good Candidates

Have debts of £6,000-£75,000
Have regular income (employed or self-employed)
Can afford £80-100+ monthly
Want to avoid bankruptcy
Own a home they want to protect
Can commit to 5-6 years
Have mostly unsecured debts

❌ Poor Candidates

Have debts under £6,000 (consider DMP)
Have no regular income (consider DRO/bankruptcy)
Cannot afford £80/month minimum
Need a short-term solution
Have mostly secured debts
Are unlikely to maintain payments
Need maximum flexibility

Making Your Decision

Questions to Ask Yourself

Financial Commitment
- Can I commit to 5-6 years of payments?
- Will my income remain stable?
- Can I live on a strict budget?
Personal Circumstances
- How important is keeping my home?
- What's my employment situation?
- Do I have joint debts with others?
Alternatives
- Have I explored all other options?
- Is bankruptcy actually worse for me?
- Could I manage with a DMP?
Long-Term Impact
- Can I handle 6 years of credit damage?
- How will this affect my career?
- What are my plans for the next 5-6 years?

Next Steps

If IVA Seems Right

Use our Eligibility Calculator
Calculate your Monthly Payment
Read about the IVA Process
Consult 2-3 licensed Insolvency Practitioners

If You're Unsure

Use our Debt Solution Comparator
Review IVA Alternatives
Contact free debt charities:
- StepChange: 0800 138 1111
- National Debtline: 0808 808 4000
- Citizens Advice: Local bureau

Get Professional Advice

Never enter an IVA without:

Speaking to a licensed Insolvency Practitioner
Comparing multiple IPs and their fees
Getting free advice from debt charities
Fully understanding the commitment

Key Takeaway

An IVA can be an excellent debt solution for the right person, offering debt write-off and creditor protection. However, it's a serious 5-6 year commitment with significant credit implications.

The "right" solution is highly personal - what works for one person may not work for another. Take time to understand all your options and seek professional advice before deciding.

Remember: This analysis is for information only. Always consult licensed professionals before entering any debt solution.

Back to What is an IVA?