IVA spending restrictions: What you can and can’t do during an IVA

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This article will outline what an IVA is and how it works before delving into the various spending restrictions you’ll be expected to follow for the duration of your arrangement.

When you enter an IVA, you’ll be placed under strict spending restrictions to ensure you can meet your monthly repayments and complete your arrangement within the proposed timeframe.

But how long will you have to stick to these rules? And what impact will it have on your finances in the long run?

Being told what you can and can’t do with your money can take some getting used to, but these rules are in place to protect you and your finances.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors (the individuals or businesses you owe) to repay your unsecured debts through a series of monthly payments based on affordability.

IVAs are legally binding, which means they are approved by the court and must be managed by an Insolvency Practitioner (IP), who is a financial professional authorised to preside over your arrangement and act as a third party between you and your creditors.

Once you’ve entered an IVA, you must agree to stick to the terms outlined in your IVA proposal.

This includes making payments as they’re due and letting your IP know if your financial situation changes.

Similarly, your creditors should agree to freeze all interest and charges and stop contacting you about the debt.

This can allow you to make monthly payments towards your existing balance without worrying about constant letters or phone calls or watching your debt level rise, which can be extremely discouraging.

How does an IVA work?

The IVA process can differ slightly but typically follows the same set of steps. Here is a quick guide to what you can expect when you apply for an IVA:

Meet with an IP

The first step in the IVA process is scheduling a meeting with an IP. During this meeting, they will talk you through your options and determine whether an IVA is the best option for your financial situation at this time.

This meeting can be a great opportunity to ask any questions you have about the IVA process, such as how long your arrangement is likely to last and how your credit score will be affected.

Review your IVA proposal

Once your IP has confirmed an IVA is a suitable option, they will draw up an IVA proposal for you to review and sign.

This is a document outlining who you owe, how the debt was accrued, and how much you can comfortably afford to pay each month.

The IVA proposal will be sent to your creditors for them to vote on during a ‘creditors meeting’ or ‘meeting of creditors’.

This may sound daunting, but it doesn’t mean your creditors are meeting in person and is simply the name given to the period taken for your creditors to cast their vote.

Wait for your creditors’ decision

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

For your IVA to go ahead, the creditors to which you owe at least 75% of your total debt must state that they are happy to proceed.

Even if the rest of your creditors disagree, the IVA will go ahead with all of your creditors included as long as 75% of your debts have permission to be entered into the arrangement.

Start making payments

Once your IVA has been approved, your IP will instruct your creditors to stop contacting you about the debt and schedule your first monthly payment, which will usually be within six weeks.

Most IVAs last five years (60 monthly payments) but your arrangement can be extended to six years (72 monthly payments) if your final repayment amount falls short of the amount originally listed on your IVA proposal. This can happen if you missed payments or had a payment break.

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How will an IVA affect my credit rating?

When you enter into an IVA, it will be visible on your credit record for six years from the date it was approved.

During this time, your credit rating will be affected and you’ll struggle to access most forms of credit, such as a mortgage, loan, bank account, or phone contract.

This means that, if your IVA lasts the standard five-year term, it will still be visible on your credit file for another 12 months after you exit your arrangement.

So, even if you’ve made your final payment and all your remaining debts have been written off, it doesn’t necessarily mean you’ll be able to borrow money straight away.

However, it’s important to note that the missed payments or defaults that led to the IVA in the first place will have already hurt your credit rating and an IVA will simply add to that damage.

There are several things you can do to improve your credit score after making your final payment, such as avoiding further credit, registering to vote, and regularly checking your credit report for errors.

What spending restrictions will I be under in an IVA?

For the duration of your IVA, there are certain rules you must stick to if you want your arrangement to be successful. Here is a quick guide to the spending restrictions you’ll be placed under:

Applying for further credit

There is nothing stopping you from applying for further credit during an IVA, but there is a limit to the amount you can borrow.

For example, if you want to borrow more than £500, you must seek written permission from your IP who will review your financial situation and let you know if they think it would be wise for you to enter into another credit agreement at this time. More often than not, your request will be denied.

Furthermore, it’s important to note that even if your IP gives you the go-ahead to apply for further credit, this isn’t a guarantee that a lender will agree to lend you the money and your application may still be refused.

Borrowing more money will also cause further damage to your already-damaged credit score which may mean you have to wait even longer for it to return to normal after exiting your IVA.

Accepting a windfall payment

Most IVA proposals contain a windfall clause, which is essentially a paragraph outlining the rules you must follow if you receive a lump sum payment at any point during your arrangement.

This can include winning the lottery, getting a bonus or promotion at work, or receiving an inheritance from a family member.

When this happens, you must inform your IP as soon as possible, who will likely tell you that you have to pay 100% of the windfall into your arrangement.

This is because receiving such a large sum of money will drastically alter the amount of income you have coming in and automatically means you can afford to pay more towards your IVA.

However, unless it’s for a large sum of money, you’ll still be expected to continue making debt repayments as normal going forward.

For example, if you owe £15,000 and receive a windfall of £10,000, your balance will be reduced to £5,000 and you’ll continue to make payments towards this balance until the IVA is complete.

Keeping the same bank account

When you have an IVA, there is a chance you may need to give up your current bank account.

This is because, if any of the debts included in your IVA are owed to your bank, they may deduct money from your account to recover some of the money they are owed.

Most IVA providers will recommend switching bank accounts sooner rather than later to prevent you from ending up in a situation where you’re unable to withdraw your own money or afford your essential living expenses.

However, it’s not always necessary to switch bank accounts and if none of your debts are owed to your bank, you should be able to continue using any current and saving accounts as normal.

Budgeting for day-to-day expenses

While your IVA is in place, you’ll be expected to follow a strict budget to ensure you’re living within your means and your payments have been calculated accordingly.

Before submitting your IVA proposal, your IP will review your income and expenditure and use this information to form the basis of your budget, which you’ll be expected to stick to for the duration of your arrangement.

This will ensure you have enough money from your monthly income for essential living expenses like rent, food, and clothing, with any leftover money expected to go towards your IVA payments.

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Can I go on holiday when I’m in an IVA?

IVAs tend to be a little more flexible than other debt solutions and there are no rules saying you can’t go on holiday for business or pleasure while you’re in an IVA – especially if you had a holiday booked before you entered into an IVA.

Put simply, as long as you’re only going to be on holiday temporarily and can still afford your essential expenses and IVA payments as they’re due, you shouldn’t need to inform or seek permission from your IP.

Remember, windfall payments must be disclosed to your IP as soon as possible and shouldn’t be spent on a holiday or luxury purchase.

Failure to inform your IP of a windfall payment or spending it without informing your IP can lead to your IVA failing.

What happens if I break IVA spending restrictions?

There are certain things that can put your IVA in jeopardy, but breaking a spending restriction once or by accident doesn’t necessarily mean your IVA will fail immediately and you’ll always be given a chance to put things right.

For example, you’ll usually be issued with a ‘breach notice’ informing you that you’ve broken the terms of your IVA and what you need to do to save your IVA from failing.

This can happen if you borrow more than £500 without your IP’s permission, don’t declare a windfall payment, or fail to contribute 50% of any income earned over the additional income threshold.

Can I still save when I’m in an IVA?

There are no rules saying you can’t save while you’re in an IVA and, in some cases, it can be useful to set aside some spare cash in a separate savings account to help you make ends meet in the event of a financial emergency.

However, with almost all of your income going towards essential living costs and IVA payments, it’s unlikely that you’ll have much disposable income to spare.

Remember, as long as the savings come from reducing your living expenses, such as groceries, clothing, and transport, you’ll be able to keep this money and can put it towards savings if you wish. This can allow you to cut down on essential costs and save for a financial emergency, all while paying off your debts.

What is an additional income threshold?

Once your IVA has been approved, your IP will inform you of your ‘additional income threshold’. This is the maximum amount you can earn on top of your usual income without having to put it towards your IVA and is usually 10% of your monthly income.

For example, if you earn £1200 a month, you can make up to an extra £120 a month to spend on whatever you like.

However, if you were to earn an extra £125, you’d be asked to pay 50% of it into your IVA.

This income can be earned by working overtime or through commissions or bonuses, and how you spend the money is completely up to you.

Whether you want to treat yourself after your final IVA payment has been made or use it to build an emergency fund, there are no rules about what you can and can’t spend it on.

There is a solution for you


An IVA is a formal debt solution that can help you deal with your unaffordable debts and take the first step on the road to financial freedom.

However, before you can be released from your debts, you’ll be expected to stick to certain spending restrictions for the duration of your arrangement.

This includes making your monthly IVA payments as they’re due and keeping your IP informed if your financial situation changes.

By committing to the terms of your IVA for five years, you can exit your arrangement with no outstanding debts and start afresh with your finances.

Key Takeaways

When you're in an IVA, you'll be expected to stick to certain spending restrictions to ensure your arrangement is a success and to protect you from further debt problems
During an IVA, you must seek permission from your IP if you want to borrow more than £500 and must disclose any windfall payments you receive
There are no rules saying you can't save or go on holiday when you're in an IVA
Breaking the spending restrictions of your IVA can lead to your IVA failing but you'll be issued with a 'breach notice' first
Once your IVA starts, you can only earn up to an extra 10% before it has to be paid into your arrangement
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

February 28 2024

Written by
Maxine McCreadie

Edited by
Ben McCormack

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