How an IVA works, step by step
An IVA runs in four stages: assessment, proposal, creditor vote, then five years of supervised payments. Costs, risks and what actually happens, explained without the sales pitch.
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The four stages
1. Assessment. An insolvency practitioner goes through your income, essential outgoings, assets and every debt. This produces your disposable income figure, which is what the whole arrangement is built on. If this figure is wrong — too optimistic — the IVA will fail later, so this is the stage to be brutally honest at.
2. The proposal. The IP drafts a formal proposal setting out what you will pay, for how long, what your assets are, and what creditors can expect to receive compared with what they would get in bankruptcy. That comparison is the heart of it: creditors accept an IVA because it pays them more than the alternative.
3. The decision procedure. Creditors vote. Approval requires 75% by value of those voting. Creditors can also propose modifications — conditions they want attached — which you can accept or reject.
4. Supervision. Once approved, the IP becomes your supervisor. You pay monthly, they distribute to creditors, and they review your income and expenditure annually. Pay rises above a threshold usually mean higher payments.
What creditors are weighing up
Creditors are not being generous. They are comparing what they would receive from your IVA against what they would receive if you went bankrupt or simply stopped paying. If the answer is that the IVA pays more, voting yes is rational. This is why IVAs are rarely approved for people with almost no surplus income — there is nothing in it for the creditors, and a Debt Relief Order or bankruptcy would be the honest answer.
Modifications, and why they matter
Creditors frequently attach modifications. Common ones include a requirement to increase payments if your income rises by more than a set percentage, restrictions on taking new credit, and specific terms about equity in your home. You should read every modification before accepting. They form part of the binding agreement and are enforceable against you for the full term.
Annual reviews
Once a year your supervisor reassesses your income and expenditure. If you are earning more, payments typically rise — often you keep a proportion of any increase and the rest goes into the arrangement. If you are earning less, you can request a reduction, but it needs creditor approval through a variation. Overtime, bonuses and second jobs are all in scope.
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Common questions
Can I change my mind after the vote?
Not unilaterally. Once approved, an IVA is a binding contract. You can ask your supervisor to propose a variation, and in some circumstances you can ask for it to be terminated, but termination usually means creditors can pursue you again for the full original balance with interest added back. This is why the decision needs making before the vote, not after.
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