Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance

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An Individual Voluntary Arrangement (IVA) can be a helpful solution for managing unmanageable debts, but it’s not without its drawbacks. So, what are the downsides of an IVA? Before deciding if it’s right for you, it’s important to understand the potential negative aspects that could affect your finances and lifestyle.

1. Impact on Your Credit Score

An IVA will stay on your credit file for six years from the start date, significantly lowering your credit score. This can make it harder to borrow money, get a mortgage, or even secure certain types of contracts like mobile phone plans during this period.

2. Restriction on Spending

During an IVA, your budget is closely monitored. You will need to stick to a strict payment plan, which might limit your ability to spend on non-essential items. Your financial freedom is reduced as every spare penny goes toward paying off your debts.

3. Risk of IVA Failing

If you fail to make the agreed payments, your IVA could fail. This may lead to creditors pursuing further action, including bankruptcy. It’s crucial to ensure that you can commit to the payments for the duration of the IVA, which usually lasts five to six years.

4. Limited Debt Coverage

Not all debts can be included in an IVA. For example, student loans, child maintenance, and some secured loans cannot be part of the agreement. This could leave you dealing with these obligations on top of your IVA payments.

5. Impact on Homeownership

If you own a home, an IVA could require you to release equity to repay your debts. This might mean extending your mortgage or taking out a new loan, which could increase your financial burden in the long term.

6. Public Record

Your IVA will be listed on the Individual Insolvency Register, which is a public record. Although this is rarely checked by employers or landlords, it might be a concern for some people.

Is an IVA Right for You?

Understanding what an IVA involves and the potential downsides is crucial before committing. While it can provide relief from debt, the restrictions and long-term consequences might outweigh the benefits for some. Always seek professional advice to ensure that an IVA is the best option for your situation.

If you’re struggling with debt, take time to explore all your options and fully understand the implications of entering an IVA.

By knowing the downsides of an IVA, you’ll be better prepared to make an informed decision about your financial future.

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