Pros And Cons

It can be a great relief when you come across a debt management solution that you think will help you tackle your debts, and sometimes you can be so optimistic it can be tempting to speed through the process as quickly as possible. However, IVAs have  advantages and disadvantages that need to be taken into account and considered carefully before you go ahead with one.


A stable repayment plan
From the very beginning you will know what you have to pay every month. No creditor will ring up and demand more money from you, or send you a letter unexpectedly putting up your interest rate to an exorbitant amount. Once an agreement has been made it is legally binding. The only changes to your monthly payment amount that may occur will be through your Insolvency Practitioner if your income goes up or down or you come into a cash windfall.

Protection from creditors
Under the terms of an IVA, your creditors can only deal with your Insolvency Practitioner. They are not allowed to contact you at all, and if they do you simply tell them to speak to your Insolvency Practitioner. An IVA gives you protection from your creditors, both from the harassment they can give by telephone and letter as well as through court action to recover what they are owed. They must stick to the terms of the IVA agreement they have signed with you.

Because an IVA restructures your debts and is based on affordability, your monthly payment will be much less than you were paying previously. That’s because your Insolvency Practitioner made a deal with your creditors to accept a payment based on what was left over after all of your reasonable monthly living expenses have been paid. Prior to the IVA, you would probably have been scrimping on food, heating, bills, just about everything to try and meet that monthly debt repayment. Now it is the other way around – you get to pay for what you need and the creditors them get what is left over.

Because your monthly payment is based on what you can afford after your expenses, and you make a set number of payments, you stand a much better chance of seeing the IVA through to the end to become debt-free. All of your living expenses are taken care of, although you still have to keep a close eye on your budget, so you just have to count down the number of payments. Under the rules of the IVA you are not permitted to take out credit, so you will not be taking on any more debt. For once you are in a position of being able to pay what you need to pay and still have a good lifestyle, and that makes the IVA sustainable.

Keep your home
If you are a homeowner you will not be expected to give up your home. While your IVA may require some of the equity in it, if there is any, you will not be forced to sell. That means you and your family can stay in your home for the duration of the IVA term.


An Insolvency Practitioner must be convinced that you meet the criteria to have an IVA, which includes:

  • owing £15,000 of unsecured debt to more than two creditors
  • being a resident in England, Wales or Northern Ireland
  • a regular salary whether employed or self-employed
  • at least £150 surplus every month BEFORE debt payments are made

However, in addition to those criteria being met an Insolvency Practitioner must also make a positive nominees report that they believe you are a good choice for an IVA and can be relied upon to make the payments every month.

When you apply for an IVA you are declaring that you are insolvent and need an Insolvency Practitioner to take over the administration of your financial affairs. That’s fine as long as the creditors agree upon the IVA. If they do not however and your application fails, you may find your creditors move to take action against you as your have declared your insolvency. In reality, a good Insolvency Practitioner knows what will appeal to your creditors and will structure your IVA so it stands a good chance of success.

Legally binding
IVAs are legally binding and there can be serious consequences if you do not keep up the repayments. Just as creditors are bound to keep to their side of the agreement, you too have obligations to meet. If you fail to keep up with your payments, your IVA will fail and your creditors could move to take action against you to recover the full amount of what they are owed.

Financial reviews
On the one hand financial reviews ensure that the rising cost of living and falling salaries are taken into account every year so you do not end up pinching pennies again. However, if your salary is rising and you receive bonuses, that too will be taken into account and you payments possibly increased. Financial reviews will also highlight any windfalls, such as inheritances and lottery wins, and some of this money will be earmarked for creditors.

Credit record
An IVA will damage your credit rating for its duration, and for at least a year after it is complete. There is no way to avoid it. However, it is likely that your credit record has already been damaged prior to the IVA if you defaulted on any of your debt repayments.

Unsecured debts
Secured debts cannot be included in an IVA, only unsecured. So if you have mortgage arrears you must arrange to have these paid back each month along with your usual mortgage outside of an IVA.



Write Off Unaffordable Debts

In most circumstances an IVA will allow you to write off most of what you cannot afford to repay, i.e. such as unsecured loans and credit card debts will be gone for good once you have received your discharge notice. Note: There are some debts that cannot be written off. Click here* for more information on the limitations.

Free From Debt Pressures

Unlike a Trust Deed Scotland, an IVA can make you totally free from provable debts within 60 months, although you will have to make a contribution from your income for up to 3 years if you can afford to. Once you have received your discharge then you are totally debt free subject to some limitations depending on your circumstances.

Government Solution

An IVA is under the control of the Government and is intended to help people who are struggling wither finances. An IVA is a formal, legislated debt solution and a legally binding agreement with your creditors meaning you can take piece of mind that every aspect of your agreement is covered contractually and legally.