The popularity of individual voluntary arrangements (IVAs) continues to grow for those with debt problems in the UK. But what debts are included in an IVA? Caroline Clark of RMCSC explains.

What is an individual voluntary arrangement (IVA)?

An Individual voluntary arrangement (IVA) is a legally binding agreement between a ‘debtor’ (a person who either is or is about to become insolvent) and that person's creditors. The terms of the agreement, known as the ‘proposals’, are drafted so that the debtor can take account of his or her personal circumstances and make an offer to their creditors of a dividend in settlement of amounts owed.  

IVAs were introduced by the Insolvency Act 1986. They are an alternative to bankruptcy which enable individuals with major financial problems to deal with those problems in a way that is both fair to their creditors and enables the person with financial problems to put those problems in the past using insolvency law.

IVAs are now particularly helpful for people known as ‘consumer debtors’; people whose financial problems may have arisen because of the overuse of credit cards or personal loans and who have a future income that can been used to make contributions to pay a dividend to creditors. The proposals for such an IVA would typically involve the debtor making monthly contributions for five years to the supervisor of the IVA. The supervisor would use these funds to pay a dividend to creditors in settlement of the amounts owed to them at the date of the IVA.

What creditors can be included in an individual voluntary arrangement (IVA)?

All unsecured creditors may be included in an IVA except for:

• maintenance payments that have been ordered by a court
• child support payments
• magistrates' court fines
• social fund loans
• student loans
• TV licence payments

It should be noted that, subject to the above, it is for the debtor to choose which creditors are to be included in the IVA. If a creditor is not included in the IVA, that creditor is not bound by it and the debtor will still have to pay that creditor in full. Most debtors do all they can to make sure that all their unsecured creditors are included in IVAs to ensure that no creditors have the option of bringing legal action to recover money owed to them at the date of the IVA.

There is no limit to the amount of debt that can be included in an IVA and IVAs are not just for people with debts that are above or below specific levels, unlike debt relief orders which are only for people with debts of less than £20,000.

Can secured loans be included in an individual voluntary arrangement (IVA)?

Secured loans, such as mortgages, may be included in an IVA but the terms of the loan cannot be changed without the consent of the secured creditor. Provided that the debt owed to the secured creditor is fully secured then the secured creditor is unlikely to consent to any change in the terms of the loan and accept a dividend in settlement of the amount due.

In this type of situation both the secured creditor and the property that was subject to the mortgage may well both be excluded from the IVA.

Can joint debts be included in an individual voluntary arrangement (IVA)?

The law allows joint debts to be included in an IVA. However, joint debts can be complicated, and care should be taken to establish whether including the joint debt in the IVA would be the best option for either of the people who are liable for the joint debt.

More than one person is liable for a joint debt and if the other person liable for the joint debt is not subject to an IVA the creditor would still be able to bring legal action against the other person liable for the debt. The circumstances would vary depending on whether the people are jointly or individually liable for the debt; people with joint mortgages are typically jointly and individually liable for the mortgage. Independent professional advice may be appropriate for those jointly liable for the debt.

About the author

Caroline Clark is director of RMCSC, a fellow of the Insolvency Practitioners Association and R3, and has an MBA. She established RMCSC in 2013, providing consultancy advice for insolvency practitioners about compliance with insolvency and anti-money laundering legislation.

See also

Bankruptcy or an IVA - which is best?

Can you cancel an individual voluntary arrangement (IVA)?

What is an IVA and is it right for you?

A brief guide to debt relief orders

Find out more

Insolvency Act 1986 (Legislation)

Image: Getty Images

Publication date: 15 June 2020

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.