IVAs (Individual Voluntary Arrangements) are legally binding financial agreements, usually lasting five years, that help people clear unsecured debts which they can't afford to repay within a reasonable amount of time.

Basically, if the IVA goes ahead, the borrower will commit to repaying as much as they can within a certain time period - and their creditors will commit to writing off the remainder of the debt if and when the IVA reaches a successful conclusion.

If you have a high level of unsecured debt that you can't afford to repay, but you can commit to making regular reduced monthly payments, then an IVA might be right for you.

An IVA would require you to pay the majority of your monthly disposable income to your Insolvency Practitioner (IP), who would subsequently distribute funds to your creditors on a pro rata basis (this means the money would be distributed according to how much you owe each of your creditors).

IVAs aren't suitable for people who can't be reasonably confident about their ability to make regular payments for five years - but of course no-one can be certain that their financial circumstances will stay as they are.

What should I do if my circumstances change?

If you're in an IVA and an unexpected change occurs (such as a drop in income), your ability to make your payments may be affected. A huge change to your finances may mean it's unlikely that your IVA will be able to continue - but not every change will threaten the success of your IVA.

It may be quite possible that your IVA will succeed if you and your creditors can agree to a few changes to it. In this case, an IVA variation may be the best way forward for both you and your creditors.

What is an IVA variation?

An IVA variation is basically a new proposal that details what changes would have to be made to they way you're making your payments, to ensure that you could continue making them and bring the IVA to a successful conclusion.

How does an IVA variation work?

Your IP is responsible for supporting and representing you throughout the course of your IVA. They will act in the best interest of both you and your creditors. This could include negotiating for an IVA variation - if they believe it's the most suitable option.

If an IVA variation is seen to be the best option, your IP will work with you to come up with a new proposal, which will be reviewed by your creditors, in a similar way to your original IVA proposal (voting creditors accounting for at least 75% of your total debt have to approve of the terms set out in the variation).

Since creditors are not obliged to agree to the changes, your IVA variation may be rejected. If this happens, and you definitely can't continue with the IVA, then the agreement will fail. In this case, you could look into an alternative debt solution, such as a debt management plan or bankruptcy.

Note: be aware that an IVA will have a significant effect on your credit rating, making it harder and/or more expensive to access further credit for six years from the time it starts.

This article was written by the IVA-Forum.