An individual voluntary arrangement is a legally binding agreement between you and your creditors. A licensed insolvency practitioner helps you to work out what you can realistically afford to pay back over a period of time (normally three to five years) and then presents this to your creditors. Individual voluntary agreements can also be arranged using third-party monies or through releasing equity in a property to share among the creditors.

If three quarters of your creditors who vote on your proposal agree to the individual voluntary arrangement, all your debts and the future interest on them will be frozen. Creditors are legally bound to the individual voluntary arrangement and cannot take steps to enforce their debt unless you fail to keep to the terms of the individual voluntary arrangement.

The insolvency practitioner administers the individual voluntary arrangement and ensures that all payments are made correctly. At the end of the agreed period, if you have kept up with your individual voluntary arrangement payments, your debts are written off.

Things to note about IVAs:

1. An IVA is not suitable for everyone. It is usually only worth looking at if you have a lot of money to spare every month to pay your creditors and/or you have a lump sum or assets that can be included (which can be your house if you have equity in it)

2. An IVA has to be set up by an insolvency practitioner (IP). An insolvency practitioner is usually an accountant or solicitor who is authorised to set up IVAs. Once an IP has agreed to make an IVA proposal for you they can apply to the county court for an 'interim order'. This stops your creditors from starting bankruptcy proceedings against you. It also stops any other enforcement action without the court's permission whilst the interim order is in force.

(click here to start the IVA application process with DebtCleared.co.uk)