When I went on a debt management plan just before I hit my twenties, I looked into IVAs as part of researching my options. An IVA wasn't right for me at the time - I could realistically pay back everything I owed over five years with a DMP, so there was no debt to write off. But at the same time, a friend of mine took a different route and entered an IVA because their debt was significantly higher and genuinely unrepayable in full. Watching them go through that process gave me a real-world view of how IVAs actually work alongside the official guidance.

One thing that struck me at the time was the difference in cost between a DMP and an IVA. I went through Payplan, which is a free debt charity - every penny I paid went directly to my creditors. My friend's IVA was through a commercial company, and a proportion of every monthly payment went to the IVA provider as fees. There are charity options for IVAs too - more on that below - and it's worth knowing the difference before you commit.

This is a general guide only. If you're considering an IVA, always get advice from a free, regulated debt advice service before making any decisions.

What is an IVA?

An Individual Voluntary Arrangement - IVA - is a formal, legally binding debt solution available to residents of England, Wales and Northern Ireland. It's an agreement between you and your unsecured creditors to repay as much of your debt as you can afford over a set period, typically five years, with any remaining balance written off at the end.

An IVA is set up and supervised by a Licensed Insolvency Practitioner (IP). A single affordable monthly payment is agreed based on what you have left after essential living costs, and that amount is divided among your creditors. For the IVA to go ahead, creditors holding at least 75% of your total debt must agree to the proposal.

At the end of the arrangement, any remaining unsecured debt included in the IVA is legally written off. Interest and charges are frozen from the moment the IVA begins, and you're legally protected from further enforcement action by your creditors throughout.

Am I eligible for an IVA?

An IVA may be suitable if you:

• Have at least £6,000 or more of unsecured debt owed to two or more creditors
• Are a resident in England, Wales or Northern Ireland
• Have a regular income that allows you to make consistent monthly payments
• Have at least £80 or more spare each month after essential outgoings to put towards your debts

This is a general guide only - eligibility depends on your individual circumstances and isn't guaranteed. A debt advice service can assess your specific situation properly.

What debts can be included in an IVA?

Most unsecured debts can be included:

• Credit cards
• Personal loans
• Overdrafts
• Payday loans
• Store cards and catalogue debts
• Gas, electricity and water bill arrears
• Council tax arrears
• Income tax and National Insurance arrears
• Tax credit and benefit overpayments
• Debts owed to friends or family

The following debts cannot be included:

• Mortgages and secured loans
• Hire purchase agreements
• Court fines
• TV licence arrears
• Student loans
• Child support arrears
• Social fund loans
• Debts incurred through fraud

Joint debts can be included in your IVA, but the other named person on the debt will still be responsible for their share of it.

IVA pros and cons

Advantages

• You make one single affordable monthly payment rather than juggling multiple creditors
• Any remaining debt included in the IVA is written off at the end of the arrangement - on average between 50% and 60% of the original amount, though this varies
• Interest and charges are frozen as long as you maintain your payments
• You keep your home, though if it has equity you may be asked to release some of it
• You are legally protected from creditor enforcement action throughout

Disadvantages

• Your IVA will appear on the Insolvency Register and your credit file for six years, significantly affecting your ability to borrow during that time
• If your home has equity, you may be required to remortgage to release some of it towards the end of the IVA
• If you receive an inheritance or windfall of more than £500 during the IVA term, you'll likely be required to pay it towards the arrangement
• If the IVA fails, any fees paid up to that point are lost and you could face bankruptcy
• Not all creditors may agree - 75% by debt value must vote in favour

How much does an IVA cost?

All IVAs carry fees because a Licensed Insolvency Practitioner must legally administer them. These fees are built into your monthly payment rather than charged on top - so you still pay only what you've agreed you can afford each month.

What varies is where those fees go. Commercial IVA companies are profit-making businesses. Debt charities like StepChange also offer IVAs, and any profits from their IVA work are gift-aided back to the charity rather than paid to shareholders. There are no set-up fees with StepChange and the monthly payment remains the same regardless.

This is something worth paying attention to. The amount you pay each month may be identical between a commercial provider and a charity, but with a charity more of that money is working in your interests rather than funding a business. Always compare providers and ask specifically about how fees are structured before you commit.

IVA vs DMP - what's the difference?

Both an IVA and a Debt Management Plan (DMP) are ways of managing debt you can't pay in the usual way. The key differences are:

An IVA is formal and legally binding. It can result in debt being written off and offers legal protection from creditors. It affects your credit file for six years and has fees attached. It's better suited to people with significant debt they cannot realistically repay in full.

A DMP is informal and not legally binding, but can still be very effective. Through a free charity like Payplan or StepChange, every penny you pay goes directly to your creditors with nothing deducted in fees. It doesn't write off debt - you pay back everything you owe, but it's much simpler and has less impact on your credit rating long term.  They may be able to freeze interest too.

When I was in debt I chose a DMP specifically because I could realistically pay everything back - there was nothing to write off. My friend chose an IVA because their debt was genuinely unmanageable otherwise. Both were the right decision for our individual circumstances.

For more on the DMP route, my debt management plan story covers how that process worked in practice.

Is an IVA better than bankruptcy?

An IVA is generally considered preferable to bankruptcy for most people because you keep your home (subject to equity requirements), you keep certain professional qualifications that bankruptcy can affect, and the process is less severe overall. Bankruptcy is usually only considered when an IVA isn't viable - for example if your income is too low to support any monthly payment at all.

If you're weighing up these options, a free debt advice charity is the right starting point. They can assess which solution actually fits your circumstances rather than which one benefits a provider commercially.

How to apply for an IVA

The process typically works as follows:

1. Contact a Licensed Insolvency Practitioner or a debt charity that offers IVAs to discuss your situation
2. The IP prepares a proposal based on your income, outgoings and debts and sends it to your creditors
3. A creditors' meeting takes place where creditors vote on whether to accept the proposal - 75% by debt value must agree
4. If accepted, your monthly payments begin and the IP supervises the arrangement throughout
5. At the end of the five years, any remaining included debt is written off

Where to get free IVA advice

Before approaching any commercial IVA provider, speak to a free debt advice charity first. They are impartial, regulated, and their advice costs you nothing:

• StepChange (stepchange.org) - the UK's leading debt advice charity, which also offers IVAs directly
• Payplan (payplan.com) - free debt management and also offers IVA services
• Citizens Advice (citizensadvice.org.uk) - free advice on all debt options
• MoneyHelper (moneyhelper.org.uk) - government-backed free money and debt guidance

If you're currently managing debt and want to understand more about budgeting around it, how to manage loan repayments and what to do when you have debt you cannot pay are both worth reading.

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Before you go...

If you're dealing with debt right now, my teenage debt story covers how I cleared £17,500 of debt and what I learned from the experience. And for practical steps on getting your finances back on track, 10 tips to keep your finances healthy is a good starting point.