An IVA, or Individual Voluntary Arrangement is a formal agreement between you and the people you owe money to. Most often, it involves your creditors agreeing to reduce the amount you owe and to freeze interest on your debts, providing that you continue to make a monthly payment for a set period of time, usually five years. At the end of this period, your debts are considered to be settled in full.

The IVA is a government approved scheme that was originally introduced as an alternative to bankruptcy. It is aimed at those who cannot afford to pay back all the money they owe but who can afford to make some form of payment. Given its legal nature, it must be organised through a licensed Insolvency Practitioner, who will deal with your creditors on your behalf.

In order to be eligible for an IVA, you must owe money to three or more creditors and your total debts must exceed £15000. A proposal is put to your creditors, based on what you can realistically afford to pay back and they have the chance to vote on whether or not they agree with the proposed payment scheme. Your creditors do not have to agree to an IVA. But if creditors representing 75% of your debt do agree to it, then the IVA goes ahead. Because it is a legal contract, your creditors cannot back out of it at a later date and as long as you make the payments as agreed each month, by the end of the IVA your debts are completely settled.