How an Individual Voluntary Arrangement (IVA) can help you

An Individual Voluntary Arrangement (IVA) is a formal arrangement between someone who owes money (debtor) and the people they owe money to (creditors). An IVA is legally binding and administered by a qualified Insolvency Practitioner (IP).

A person who is in an IVA (the debtor) makes agreed monthly payments normally for a period of five years. In some cases, depending on the circumstances a one-off payment can be made; this is known as a lump sum IVA.

Once an IVA has been successfully completed any remaining unsecured debt is written off.

An IVA is only available to people who live in England, Wales, or Northern Ireland. People who live in Scotland can enter into a Protected Trust Deed (PTD), which provides a similar solution to the IVA.

Some benefits to entering an IVA:

  • Once the final payment has been made, any remaining unsecured debt is written off.
  • Once the creditors have accepted the IVA, all interests and charges will be frozen.
  • Once the IVA has been accepted, creditors cannot pursue debts. This includes, but is not limited to, the issuing of letters. Court actions associated with the debts will also cease.

Some downsides and risks associated with the IVA:

  • Your IVA will fail if you don’t maintain your monthly payments.
  • Secured debts can’t be included into the arrangement.
  • Creditors can vote against the IVA being accepted.

Other debt solutions

What is a debt management plan (DMP)?

A Debt Management Plan (DMP) is an informal arrangement that helps you to manage your debts.

Any debts managed through a DMP will ultimately be paid off in full, provided that the payments are maintained.

Payments in a DMP are normally calculated on what you can afford after accounting for essentials, such as household bills.

Once the DMP is set, your interest and charges may be frozen or reduced - but this will also depend on the creditor. This could also increase the length of time needed to repay outstanding debts in full.

If you live in England, Wales, Northern Ireland and Scotland you are eligible for a DMP. If you live in Scotland, a DAS can also provide a similar solution to a DMP.

Some benefits to the DMP:

  • The DMP provides a flexible arrangement with one monthly affordable payment which is split between your creditors on a pro-rata basis.
  • Interest and charges may be frozen.
  • The DMP is an informal arrangement, so you can leave it once your circumstances are back under control.

Some downsides and risks associated with the DMP:

  • As you are making reduced payments, your credit rating will be affected.
  • The DMP may increase the length of time needed to repay your debts in full due to the lower reduced monthly payments that are being made.
  • Some of your creditors may still contact you in spite of the DMP. However, your DMP company will offer support and advice.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.

What is a debt relief order (DRO)?

A Debt Relief Order (DRO) is an alternative to bankruptcy. It lasts for 12 months and allows debts to be written off for people on relatively low incomes.

To qualify for a DRO you must not own a home, have assets of less than £1,000 (excluding a vehicle), have debts of under £20,000, and have a monthly disposable income of less than £50.

A Debt Relief Order freezes debt repayments and interest for 12 months. If the financial situation has not changed by the end of this period, debts will be written off.

A DRO is only available to people who live in England, Wales, or Northern Ireland. If you live in Scotland, a Minimal Assets Process (MAP) provides a similar solution to a DRO.

Once the DRO is set, your interest and charges may be frozen or reduced - but this will also depend on the creditor. This could also increase the length of time needed to repay outstanding debts in full.

Some benefits to the DRO:

  • Your creditors cannot pursue your debts during the 12-month period.
  • You will not be asked to pay anything towards your debts for 12 months. After the 12-month period, your debts will be written off.
  • The DRO can be a low-cost alternative to bankruptcy.

Some downsides and risks associated with the DRO:

  • Homeowners are not eligible for the DRO.
  • Your details will appear on a public register.
  • Your credit rating is negatively affected.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.

What is bankruptcy?

Bankruptcy is a legal proceeding and form of insolvency. It is normally suitable for situations where you cannot repay your debts within a reasonable time.

Your assets, such as your house or car, will usually be sold to pay off your debts. This means that if your assets are worth more than your debts, bankruptcy is unlikely to be your best solution.

In some cases, you may be asked to make monthly payments towards your debts from your available monthly income. This is known as an income payment agreement and may be payable for up to 36 months.

Bankruptcy is only available to people who live in England, Wales, or Northern Ireland. If you live in Scotland, sequestration provides a similar solution to bankruptcy.

There are three routes to seeking bankruptcy:

  • By a creditor
  • By an IVA Supervisor application
  • By your own petition for bankruptcy

Some benefits to bankruptcy:

  • You will receive no further contact from your creditors
  • If you qualify for the process, all unsecured debts are written off.
  • Creditors can no longer take legal action.

Some downsides and risks associated with bankruptcy:

  • Any assets you own will be included within your bankruptcy proceedings, and likely to be sold.
  • Credit rating is negatively affected and will remain on your credit file for 6 years.
  • Your details will appear on a public register.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.

What is a debt arrangement scheme (DAS)?

Debt Arrangement Schemes (DAS) are endorsed by the Scottish government. They allow you to repay your debts at an affordable rate over an extended period of time, whilst giving protection against creditor actions.

The monthly payment is based on the amount of money you have left once you have paid all your household bills. Once approved, you will be protected from creditor actions and all interest and charges will be frozen.

Your DAS will be set up and managed by an ‘approved money advisor’. Payments under the DAS are taken and passed onto your creditors by a ‘payment distributor’.

Only people who live in Scotland are eligible for a DAS. If you live in England, Wales, or Northern Ireland, a Debt Management Plan (DMP) can provide a similar solution to a DAS.

Once the DAS is set, your interest and charges may be frozen or reduced - but this will also depend on the creditor. This could also increase the length of time needed to repay outstanding debts in full.

Some benefits to the DAS:

  • Any interest and charges that are being applied to your debts are frozen.
  • Any assets are protected.
  • Creditors cannot contact or take legal action against you.

Some downsides and risks associated with the DAS:

  • Your details will be put onto the DAS register, which is accessible to the public.
  • Your credit rating is negatively affected and will remain on your credit file for six years.
  • The DAS may increase the length of time needed to repay your debts due to the reduced monthly payments.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.

What is a minimal asset process (MAP)?

A Minimal Asset Process (MAP) bankruptcy gives you a fresh start, allowing you to write off your unsecured debts (between £1500 and £17000) within a short period of time.

It is aimed at people with low incomes, that have no disposable income left outside of essential household bills. The process usually lasts for six months.

A MAP is only available to people who live in Scotland. If you live in England, Wales, or Northern Ireland, a Debt Relief Order (DRO) provides a similar solution to the MAP.

Some benefits to the MAP:

  • Your debts will be written off once the MAP is completed and accepted.
  • A MAP can be a low-cost alternative to sequestration.
  • Creditors cannot contact or take any legal action against you.

Some downsides and risks associated with the MAP:

  • Homeowners are not eligible for the MAP.
  • Your details will appear on a public register.
  • Your credit rating is negatively affected.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.

What is sequestration (Scottish Bankruptcy)?

Sequestration is a legal proceeding and form of insolvency. It is normally suitable for situations where you cannot repay back your debts within a reasonable time.

Your assets, such as your house or car, will usually be sold off to pay your debts. This means that if your assets are worth more than your debts, sequestration is unlikely to be your best solution.

Sequestration allows you to write off any remaining unsecured debt after one year. Your application will go through the Accountant in Bankruptcy (AIB).

Sequestration is only available to people who live in Scotland. If you live in England, Wales, or Northern Ireland, bankruptcy provides a similar solution to Sequestration.

Some benefits to Sequestration:

  • You will receive no further contact from your creditors.
  • All unsecured debts are written off after one year.
  • Creditors can no longer take legal action.

Some downsides and risks associated with Sequestration:

  • Any assets you own may be included within your Sequestration, and likely to be sold.
  • Your credit rating is negatively affected and will remain on your credit file for six years.
  • Your details will appear on a public register.

** We recommend that you book an appointment at your local Citizens Advice Bureau (CAB). You may also want to have a look at the Money Advise Service website, which will provide you with free and impartial advice.