Clearing your debt with an IVA

An individual voluntary arrangement (IVA) can negatively affect your personal and professional life, and make a dent in your credit score. But, if managed well, an IVA can also help you get your finances back on track. By meeting the terms of your IVA, and taking steps to rebuild your credit profile, you can improve your financial situation in the long run.

What is an IVA?

An individual voluntary arrangement (IVA) is a way to deal with debt you're struggling to repay. It's an agreement between you and your creditors (organisations you owe money to) that sets out when and how you'll repay them. For example, you might promise to give them some of your salary each month, or to pay them a lump sum. In return, creditors may agree to wipe out some of your debt, meaning you won't need to pay the full amount owed.

Is an IVA right for me?

Only some people can qualify for an IVA. At least 75% of your debts need to be included in the Agreement, and the relevant creditors must agree to it. Some debts can't be included, such as student loans, fines and child support. If you live in Scotland you can't get an IVA, but you may be able to get a Protected Trust Deed, which is similar.

To set up an individual voluntary arrangement, you'll need to pay a licensed insolvency practitioner (usually a qualified lawyer or accountant). Their fees can be around £5,000 – but some practitioners will include this in the Agreement.

Note that there are other ways to deal with debt, including Debt Relief Orders and bankruptcy. If you need support with repaying your debts, make sure to speak to a free, independent debt adviser.

Who will see my IVA?

Your creditors will be told about your IVA. This can include more than just banks – if you owe money to your council, mobile phone provider or utility suppliers (e.g. gas, water and electricity companies) then they will also be notified. If you’re self-employed, HMRC and your trade creditors will be told about your IVA.

The details of your IVA will be recorded on the Individual Insolvency Register, which anyone can view online. However, the Register is usually only used by people working in the insolvency or credit industries – so it's unlikely your friends and neighbours will hear about your IVA.

How does an IVA work and how will it affect my life?

An IVA usually runs for 5-6 years, although it’ll be extended if you miss payments. During this time, you’ll need to stick to the rules in the Agreement, and you’ll have limited control over your money. You can expect an IVA to impact your:

  • Spending. You must keep to a budget during your IVA, and any bonuses or additional income must go towards your debts.
  • Borrowing. You'll only be allowed to borrow up to £500 during your IVA. If you need to borrow more, you'll have to get approval from your insolvency practitioner. Also, you may find it difficult to get approved for credit.
  • Possessions. It's possible you'll have to sell valuable items to repay your debts, and return things you’re still paying off. An exception might be your car if you need it for work – although, if it's an expensive car, you may need to trade it in for a cheaper version.
  • Savings. You'll usually have to contribute any savings towards your debts. Also, if you come into a lot of money during your IVA (e.g. redundancy pay or an inheritance), you may have to pay the full amount you owed before setting up the Agreement.
  • Job. Your employment could be affected, although this is unlikely unless you’re an accountant, lawyer or similar.
  • Business. Companies can check if someone’s on the Insolvency Register before trading with them – so, if you’re self-employed, an IVA may damage your reputation and ability to do business.

How will an IVA affect my credit rating?

If you get an individual voluntary arrangement, it’ll be recorded on your credit report. Your credit score will go down as a result, since this number is based on information in your report. A lower score means you may struggle to borrow money. You can check your Experian Credit Score anytime by creating a free Experian account.

So why does an IVA reduce your chances of getting credit? When you apply for credit – such as a loan, credit card or mortgage – the lender will use your credit information to help them decide if you’re likely to pay them back. An IVA shows you’ve had difficulty repaying debt in the past, so they may see you as a high-risk customer. As a result, you may be rejected or charged a higher interest rate.

How long will an IVA stay on my credit report?

Your IVA will appear on your credit report for six years, starting from the date it was approved. This record won’t be removed if you finish your IVA earlier, but it will be marked as ‘complete’. Note that any debts included in your IVA may be recorded as separate entries on your report.

Can I still get credit with an IVA?

It’s possible to get some types of credit when you have an IVA. These options usually have low limits and high interest rates. Every application for credit you make will negatively impact your score, so don’t use a scattergun approach – only apply for credit you’re likely to get.

You can see which credit cards and personal loans you’re more likely to get when you use our comparison service, which won’t hurt your score. Remember, we’re a credit broker, not a lender – we can help you find credit deals, but we don’t provide credit or make lending decisions. Note that while you have an IVA, you can only take out £500 without your practitioner’s written approval.

Can I remove or update an IVA on my credit report?

An IVA should be automatically added, marked ‘complete’ and removed without you having to do anything. However, if you think the record is inaccurate you can ask us to update it – you may need to provide evidence such as a letter from your insolvency practitioner.

You can also ask us to add a note on your report, explaining to lenders why you got into debt and had to set up an IVA – for example, due to redundancy or long-term illness.

You can check the status of your IVA record by ordering your credit report.

How can I improve my credit score after an IVA?

As your IVA ages, your score should gradually improve. This is because lenders typically pay more attention to your most recent credit history. Your IVA will look better once it’s marked ‘completed’ too.

After six years, your individual voluntary arrangement will be removed from your credit report. Because the IVA restricts what you can borrow, you won’t have much credit information during this period, so your score may still be low. However, there are many steps you can take to improve your score.

In the long-term, keep your spending on track by budgeting and planning for the future. One way to get more control over your finances is to sign up to a CreditExpert paid subscription.This allows you to check your Experian Credit report and Experian Credit Score whenever you like, helping you understand what you owe and your chances of getting credit.