A structured way to deal with personal debt without going bankrupt
I often speak to directors who assume that once personal guarantees or loan accounts come into play, bankruptcy is the only outcome. It isn’t. There is another route, and in the right circumstances, it can be a much more controlled way of dealing with the situation. That route is an Individual Voluntary Arrangement, commonly referred to as an IVA.
So what actually is an IVA?
At its core, an IVA is a formal agreement between you and your creditors. It is governed by the Insolvency Act 1986, and once approved, it becomes legally binding. Instead of everything coming to an abrupt stop, as it does in bankruptcy, an IVA allows you to deal with your debts over time. Typically, that means making monthly payments over 5 to 6 years, although in some cases it can be a lump sum arrangement. For it to go ahead, at least 75% of your creditors by value of those who vote must agree. Once that happens, all unsecured creditors are bound by it, whether they voted or not.
Where I tend to see this in practice
Most of the situations I deal with involve directors who have signed personal guarantees, built up an overdrawn directors’ loan account, fallen behind with HMRC, or are carrying multiple unsecured debts following business difficulties. By the time they come to me, they are often expecting the worst. And sometimes, yes, bankruptcy is the right route. But quite often, there is still room to structure something more manageable.
Why some people choose this route
What an IVA does, when it works properly, is create breathing space. It allows a controlled repayment plan based on what you can realistically afford, protection from further enforcement action by creditors, and the possibility that a portion of the debt will be written off at the end. It also avoids the immediate and automatic restrictions that come with bankruptcy. But it is important not to dress it up as an easy option. It is still a formal insolvency process, and it still needs to be taken seriously.
Where people get caught out
This is the part that doesn’t always get explained properly. An IVA only works if it is realistic. I have seen situations where the monthly payments were too ambitious, income was not as stable as assumed, key information was not properly disclosed, or the underlying issues had not been fully addressed. When that happens, the IVA can fail. And if it fails, you are often back facing the same creditors, sometimes in a worse position. It is also worth being clear that an IVA will affect your credit file for 6 years and will appear on the Individual Insolvency Register while it is in place. It does not remove scrutiny around past conduct.
A quick reality check
One of the most common questions I get is whether someone can keep their home. The answer is often yes, but not without conditions. Most IVAs include a requirement to review equity towards the later stages of the arrangement. If there is value there, some of that may need to be introduced for the benefit of creditors. So again, it comes back to understanding the full picture, not just the headline.
The way I approach this
For me, it is never about pushing someone towards an IVA. It is about stepping back and asking what the full position actually looks like, what needs protecting, and what is genuinely sustainable over the next few years. The right solution is the one that you can actually live with, not just financially, but practically as well.
Disclaimer
This article is provided for general information purposes only and does not constitute legal or financial advice. Each situation will depend on its own facts and specific circumstances, and you should not rely on the above without taking appropriate professional advice.
If you would like to discuss your situation in confidence, please contact:
Navigate Business Recovery Limited
Office: 0330 236 9937
Mobile: 07961 116321
Email: vee@navigatebr.com