IVA loopholes – What you should know

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This guide will explore Individual Voluntary Arrangements in more detail, including the restrictions you will be placed under while you’re in an IVA and the truth behind some common IVA myths.

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors (the individuals or companies you owe money to) to help you repay your unaffordable debt through a series of regular payments based on what you can comfortably afford.

Like most formal debt solutions, there can be serious consequences for breaking the terms of an IVA and despite what you see or read online, you must try and avoid bending the rules of what you can and can’t do while you’re in an arrangement.

What is an IVA?

An IVA is a formal debt solution where you agree to make regular payments towards your unsecured debt for a certain period in exchange for your remaining debt being written off.

Most IVAs last five years but your term can be extended to six years if you miss payments or your payments are temporarily reduced or stopped.

During an IVA, all interest and charges will be frozen and your creditors won’t be able to contact you or harass you for payment. This can allow you to focus on making regular payments towards your debt without any distractions.

An Insolvency Practitioner (IP) will set up and manage your IVA and communicate with your creditors on your behalf. They will also be responsible for assessing your financial situation to ensure you can afford your monthly repayments and making changes to your arrangement if your circumstances change.

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How does an IVA work?

An IVA can be an effective way to repay your unaffordable debts, but there are several steps both you and your creditor must complete before your arrangement can get underway.

Here is a quick guide to what you can expect from the IVA process:

Initial consultation

The first thing you must do when you apply for an IVA is attend an initial consultation with an IP to discuss your financial situation and debt load.

During this meeting – which is usually provided free of charge – your IP will review your financial circumstances to determine whether an IVA or another debt solution would be the best option for you.

This can be a great opportunity to ask your IP any questions you may have about IVAs and how they work, such as how much it costs and how it will affect your credit rating.

IVA proposal

Once your IP has determined an IVA is the best option for you, they will request some supporting documents and prepare your IVA proposal.

They will then send you a copy to review, which you must sign and return as soon as possible.

Purposely hiding information or providing false information that might affect your IVA can mean you end up with an arrangement you can’t stick to. This is classed as a criminal offence, which means you could get fined or sent to prison.

Creditors meeting

The next step in the IVA process is getting your creditors to agree to the terms outlined in your IVA proposal.

For your IVA to be approved, the creditors that represent 75% of your debt must confirm they are happy to proceed.

Sometimes, a creditor will request that a modification be made to your IVA proposal. This could include an increase in your monthly payments or an extension to your IVA term.

IVA agreement

If your creditors accept the terms outlined in your IVA proposal, your IP will get to work drafting your IVA agreement.

From this point forward, all interest and charges on your debt will be frozen and your creditors will no longer be able to contact you to demand payment for the debt.

However, while your creditors will be informed of your IVA immediately, there can be a delay in the time it takes them to update their records and it can take several weeks for all communication to stop.

Completion certificate

Once you have fulfilled the terms of your agreement, you will be officially discharged from your IVA and your remaining debt will be written off.

Within 12 weeks of completing your IVA, you will be sent a completion certificate in the post to prove you have made your final payment and don’t owe any more money towards the debt.

This can also prevent your creditors from making false claims against you down the line or accusing you of missing or withholding payment.

How will an IVA affect my credit score?

When you enter into an IVA, it will be added to your credit file from the main credit reference agencies (Experian, TransUnion, and Equifax) for six years.

IVAS are also added to the Individual Insolvency Register from the Insolvency Service and will remain there until three months after the date of completion. This is a public database that includes details of all IVAs, Debt Relief Orders (DROs), and Debt Management Plans (DMPs). The information on the register is publicly available but is usually only accessed by lenders when reviewing credit applications.

During this time, your credit score will decrease and you will struggle to obtain further credit, such as a mortgage, loan, phone contract, and even a bank account. This can make borrowing money or buying a home an impossibility while you’re in an IVA.

However, it is worth noting that all debt solutions temporarily affect your credit score and an IVA will have less of an impact than bankruptcy, for example. The missed payments that led to the IVA will also have affected your credit score so a lower credit score can be a small price to pay to get your finances back on track and become debt-free.

Once you have completed an IVA, there are various steps you can take to improve your credit rating and your credit score should naturally improve as long as you didn’t incur further debt during your arrangement.

What are IVA restrictions?

When you enter into an IVA, you must agree to stick to certain spending restrictions for the duration of your arrangement. This is to ensure you can make your payments as agreed and your arrangement can end within the timeframe outlined in your IVA proposal.

Here is a guide to the restrictions you will be placed under during an IVA:

Applying for further credit

If you want to obtain further credit of more than £500 while you’re in an IVA, you must get written permission from your IP before you apply.

Failure to seek permission from your IP is classed as a breach of your arrangement and will result in your IVA being terminated. When this happens, you will no longer be protected and your creditors will be free to contact or harass you about the debt again.

However, even if your IP gives you permission to apply for credit during your IVA, there is no guarantee that a lender will approve your application and your credit rating will decrease even further.

Accepting a windfall

If you receive a significant lump sum payment during your IVA – known as a windfall – you must inform your IP as soon as possible as it will alter your expected income. This could include a bonus at work, a lottery win, or an inheritance.

However, while only a portion of a windfall payment is required to go towards your IVA, the money can be used to settle your IVA early if it is large enough to cover your outstanding balance.

Failure to inform your IP of a windfall is a breach of your IVA and your arrangement will fail.

Keeping your bank account

During an IVA, you may not be able to keep your existing bank account.

This is because, when you enter an IVA, most of your debts will be included in the arrangement – including any with the bank that holds your money, such as credit cards, overdrafts, and loans.

However, as soon as your bank becomes aware of you entering into an IVA, it will likely freeze your current account and you won’t be able to access any of your money. This can make it difficult to buy groceries, pay bills, or even make mortgage payments, putting you at risk of further financial hardship.

Sticking to a budget

When you’re in an IVA, you must prove to your creditor that you are sticking to a strict budget and not spending outside of your means. This means no luxury holidays, large purchases, or investments.

This is to ensure you are paying as much as you can towards your debt while still having enough money left over for essential living costs like rent, food, and utilities.

Before your IVA is approved, your IP will carefully assess your income and expenditure to create a realistic budget.

Are there any IVA loopholes?

The term ‘IVA loophole’ can be deceiving as it suggests a way of bending the rules while you’re in an IVA.

However, it’s important to note that while there may be aspects of an IVA you can use to your full advantage, there are no hidden clauses that you can exploit to lower your monthly payments, reduce your payment term, or hide assets or money.

For example, your debt being written off at the end of your IVA is not a loophole but a key feature of an IVA that will be managed by an IP to ensure the agreed terms are met.

During an IVA, it’s important to stick to the terms of your arrangement and make payments as outlined in your IVA proposal. The purpose of an IVA is to make it much more manageable for you to repay your debt and any attempt to bend or break the rules will only lead to further financial problems as your arrangement will likely fail.

What should I never do during an IVA?

There are certain things you will be prohibited from doing while you’re in an IVA. These rules are in place to protect you and your creditors and to ensure your IVA ends within the proposed timeframe.

Hide assets

When you enter into an IVA, you will be legally required to declare all assets, including any properties, vehicles, and other high-value items – even if they’re not linked to the debt.

Failure to declare assets is not only a clear violation of your arrangement but can be classed as a criminal offence. This can lead to you being taken to court and, in serious cases, prison.

Stop paying

Whether you don’t think you should pay or don’t have the funds to pay, you must never suddenly stop making payments towards your IVA.

Because your IP will base your repayment schedule on your income and expenditure, you should have no problem affording each monthly repayment.

If you are worried you won’t be able to make your next IVA payment, you must inform your IP as soon as possible. They will review your situation and discuss potential solutions, which could include a temporary payment break.

Hide money

When your IP is drafting your IVA, they will access your bank account, bank statements, recent payslips, and savings to draw up an affordable repayment plan. This can make it extremely difficult to hide money from them without being caught.

However, if your IP discovers you have hidden money from your IVA, your arrangement will fail and you could face serious legal repercussions.

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Common myths about IVAs

The decision to enter into an IVA can be one of the best decisions you ever make, but it’s not a decision that should be taken lightly and you must do your research before committing.

Here are some of the most common IVA myths and the truth behind them:

You can’t save

One of the biggest myths about IVAs is that you can’t save while you’re in an arrangement.

Most of your disposable income will go towards your IVA and repaying your debt might be your priority, but you should still be able to set some spare cash aside to cover unexpected expenses as long as it comes from the amount earmarked for your living expenses.

You will lose your home

When you enter into an IVA, you’ll never be forced to sell your home to repay the debt.

However, your homeownership status will be taken into account, and you may be required to release equity from your home during the final year of your arrangement. This can help you repay your debt quicker and prevent it from being extended for another year.

Your credit score will never recover

Entering into an IVA will harm your credit score and make it difficult to obtain further credit – but only for six years.

This may sound like a long time but your credit rating will already be damaged by the missed payments that led to the IVA in the first place and you will be able to start rebuilding your credit score as soon as your arrangement is complete.

Missing a payment will cause it to fail

Making payments in full and on time is crucial when you’re in a formal debt solution but missing a payment won’t immediately cause your IVA to fail.

Open and honest communication is key to ensuring your IVA succeeds. Failure to inform your IP of any money worries you have and continually missing payments can result in your IVA being terminated.


If you’re struggling with unaffordable debt, an IVA can help you repay what you owe through a series of monthly payments and put a stop to creditor contact and harassment so you can focus on becoming debt-free.

When you’re in an IVA, there are certain restrictions you must abide by to protect yourself and your creditors and, more importantly, to prevent your arrangement from failing. When this happens, you’ll no longer be protected and your creditors will be free to pursue you for the debt again.

Remember, an IVA can help you regain control of your finances but there are other debt solutions available. Always seek expert debt advice and consider all available options before making an informed decision.

Key Takeaways

An IVA can allow you to consolidate your unaffordable debt into smaller monthly payments
During an IVA, you'll be under certain restrictions to ensure your arrangement succeeds
Any attempt to break or bend the rules will result in your IVA being terminated and, in some cases, imprisonment
When you're in an IVA, you must never hide assets, hide money, or stop making payments without any explanation
Despite what you may have heard, it is still possible to save, keep your home, improve your credit score, and make up for a missed payment with an IVA
Maxine McCreadie

Maxine McCreadie

Author/Debt Expert

Maxine McCreadie, prominent personal finance writer featured in Vogue and Yahoo News, delivers practical guidance, simplifying money management and championing financial literacy.

How we reviewed this article:


Our debt experts continually monitor the personal finance and debt industry, and we update our articles when new information becomes available.

Current Version

October 17 2023

Written by
Maxine McCreadie

Edited by
Ben McCormack

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