An Individual Voluntary Arrangement, or IVA, is a legally-binding agreement between you and your creditors. Due to the formal nature of the agreement, it has to be set up by a specialist known as an Insolvency Practitioner.

Under an IVA, you make one monthly reduced payment to the Insolvency Practitioner and he distributes this to your creditors.

An IVA usually lasts for a period of 5 years during which time you make one monthly payment which is then distributed to your creditors to reduce the amount you owe.

At the end of 5 years your debt will be treated as "settled" and you will be debt-free.

However, if there is some equity in your home, (that’s the value of the property less any mortgage on it) you may have to pay some of this. If you can’t remortgage, then you may have to continue repayments for a further year.

Yes, for an IVA to work it has to be accepted by creditors that are owed at least 75% of your total debt. To see how this works in practice, let’s look at the example below.

The total amount owed is £10,000 therefore creditors that are owed £7,500 between them have to agree.

If Creditors 1 and 3 agree the IVA will be accepted because this amounts to £8,000 or 80% of the debt.

If only Creditors 1 and 2 agreed, with Creditor 3 disagreeing, then the IVA would not succeed because between them they are owed only 30% of the money, i.e. £3,000.

Your unsecured creditors can’t take any further action against you.

You will still be able to run a business, but you should ensure that you continue to make your IVA payments on time, to avoid the IVA failing and possible bankruptcy.

Your Insolvency Practitioner can draw up a new statement of your income and ask the creditors to accept further reduced payments. If they don’t accept the proposal the IVA will fail and ultimately bankruptcy may be the only option.