An IVA (Individual Voluntary Arrangement) can help people to address their unmanageable debts without petitioning for bankruptcy. But like any debt solution, it is not suitable for everyone - and you should be aware of the advantages and disadvantages when deciding whether it is the right choice for you.

How an IVA works
An IVA is an agreement with your creditors in which you will repay a set percentage of your debts, based on how much you can afford, after which the remaining debt will be written off.

Before you enter an IVA, you will work with an Insolvency Practitioner to put together an initial IVA proposal, detailing the proposed terms (e.g. how much you can afford to pay towards your debt per month once your essential costs have been covered).

This proposal will then be sent to your creditors, who will be invited to \'vote\' on the terms. Creditors accounting for at least 75% of your total debt must approve the terms for the IVA to go ahead.

If the IVA is approved, you will make monthly payments towards your debts through your Insolvency Practice, which will subsequently distribute the money between your creditors on a pro rata basis (i.e. according to how much you owe each creditor). This normally continues for five years.

While your IVA is ongoing, you may be expected to give up a portion of any increase in income (e.g. salary rise or bonuses) which will also go towards your debts. And if you are a homeowner, you may be required to give up some of the equity in your home in the 54th month of the IVA (halfway through the final year).

Once your IVA is completed, you will be legally debt-free.

IVAs and your future
Although you will be debt-free after the IVA has ended, it is possible that you may experience some restrictions in the future.

An IVA will remain on your credit history for six years from the day it begins, so you may have trouble obtaining further credit during the year after your IVA finishes.

Plus, although an IVA does not legally have to be declared on job applications, some employers may still want to know if you have ever been declared insolvent. The same may apply to future applications for credit.

How do I know if an IVA is right for me?
As we have discussed, an IVA has its positive sides and its negative sides. An IVA is widely considered a preferable alternative to bankruptcy, but it is still a major financial commitment, and bankruptcy makes better financial sense for some people (those whose income isn\'t steady enough to commit to making those regular payments, for example).

If you are unsure, contact a professional debt adviser, who can help you make the right decision based on your circumstances.