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Loans With an IVA: The Key Facts
Someone searching for information about loans with an IVA is usually asking one of two questions: can an existing loan be included in an IVA, or is it possible to take out a new loan while an IVA is running? The short answer to both is: yes, but with significant conditions attached. An Individual Voluntary Arrangement is a legally binding agreement with creditors, and borrowing during one — or structuring one around existing loans — follows strict rules set out under the Insolvency Act 1986.
Understanding how loans interact with an IVA is important before entering into any formal insolvency arrangement. The details below set out the rules, the restrictions, and what happens when those restrictions are not followed.
What Is an IVA and How Does It Work?
An Individual Voluntary Arrangement is a formal debt solution available in England, Wales, and Northern Ireland. It is an agreement between a person and their unsecured creditors to repay a portion of what is owed over a fixed period — typically five to six years — after which the remaining balance is written off. The arrangement is administered by a licensed Insolvency Practitioner (IP), who acts as supervisor throughout.
According to GOV.UK, an IVA must be approved by creditors holding at least 75% by value of the debt included in the proposal. Once approved, it becomes legally binding on all unsecured creditors named in it, even those who voted against. The person in the IVA makes regular monthly payments, and any windfall income or assets above a certain threshold may also be claimed by the IP for distribution to creditors.
Questions about IVAs and existing loans?
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Which Loans Can Be Included in an IVA?
Most unsecured loans can be included in an IVA. This covers personal loans, payday loans, credit union loans, and overdrafts. When a loan is included, the creditor is bound by the IVA terms once it is approved — they cannot continue to chase the debt independently, add interest beyond the IVA terms, or take separate legal action while the arrangement is in force.
Loans that generally cannot be included
Not all loan types are eligible for inclusion. Secured loans — such as a mortgage or a loan secured against a vehicle under a hire purchase or conditional sale agreement — cannot be included in an IVA. The secured creditor retains their legal charge over the asset and can repossess it if payments fall behind, regardless of the IVA. Someone in an IVA must continue to meet secured loan repayments separately and on time.
Certain other debts are also excluded by law, including student loans, court fines, and child maintenance arrears. These must continue to be paid in full outside the IVA. A licensed IP will confirm which debts can and cannot be included when reviewing a specific situation.
Payday loans and high-cost short-term credit
Payday loans and other high-cost unsecured credit can be included in an IVA in the same way as a standard personal loan. The creditor is notified, listed in the proposal, and bound by the arrangement once approved. If someone has multiple payday loans, each lender would be a separate creditor in the IVA.
Can Someone Take Out a New Loan During an IVA?
This is one of the most commonly misunderstood aspects of living with an IVA. Taking out new credit during an active IVA is heavily restricted. Standard IVA terms — which are set by the IP and form part of the legally binding agreement — typically prohibit obtaining credit of £500 or more without the prior written consent of the supervising Insolvency Practitioner.
This restriction applies for the entire duration of the IVA. It covers personal loans, car finance, credit cards, overdrafts, and any other form of borrowing at or above that threshold. Taking out new credit without permission is a breach of the IVA terms and can have serious consequences, including termination of the arrangement.
What happens if the IVA is breached?
If someone breaches their IVA — for example, by taking out a loan of £500 or more without the IP's approval — the supervising IP has the power to report the failure to creditors. Creditors can then vote to terminate the IVA. If the IVA is terminated, creditors are free to pursue the full original debt again, potentially including court action, County Court Judgments, or in some cases, a creditor could petition for bankruptcy.
It is not automatic that a breach leads to termination — the IP and creditors have discretion — but it is a real risk. The Insolvency Service publishes guidance confirming that IVA supervisors have a duty to report material breaches to creditors.
Can the IP ever approve new borrowing?
Yes. In certain circumstances — for example, if a car is essential for work and must be replaced — an IP may grant permission to take out modest finance. This is decided on a case-by-case basis and the IP will typically consider whether the new credit is affordable within the IVA payment structure and whether it is genuinely necessary. There is no guarantee of approval, and the decision rests entirely with the IP.
Why Lenders Rarely Offer Loans to People in an IVA
Even where IVA terms technically allow new borrowing with IP consent, in practice very few mainstream lenders will offer credit to someone currently in an IVA. An active IVA appears on the person's credit file for its full duration and for six years from the date it was approved. This significantly affects creditworthiness scores with all major reference agencies.
Some specialist or subprime lenders do offer products to people in IVAs, but interest rates tend to be substantially higher to reflect the perceived risk. Anyone considering this route should factor in whether the additional cost is manageable within the constraints of their existing IVA payments.
What About Loans Taken Out Just Before an IVA?
Loans taken out shortly before entering an IVA are a potential area of concern. If an IP believes that someone took out credit knowing they were about to enter insolvency — effectively borrowing money with no realistic prospect of repaying it — this could be flagged as potentially dishonest conduct. The IP has a duty to investigate the period leading up to the IVA and to report any concerns about how debts were incurred.
This does not mean that debts from the period before an IVA are automatically excluded. However, a creditor who believes a loan was obtained dishonestly may oppose the IVA proposal or raise a formal objection. Being transparent with the IP about all borrowing history is important when preparing an IVA proposal.
Alternatives to Borrowing During an IVA
For someone who finds themselves in genuine financial difficulty mid-IVA — for example, because of a change in income or an unexpected expense — there are formal routes that do not involve taking out new credit. The IP can be approached to request a payment break (known as a payment holiday) or a temporary reduction in monthly payments. These variations are not guaranteed but are commonly considered where the need is genuine and evidenced.
Where circumstances have changed significantly and the IVA is no longer viable, an IP may propose a variation to creditors — effectively amending the terms of the arrangement. If a variation cannot be agreed, the IP may recommend that the person consider alternative options, which could include bankruptcy. Taking out a loan to cover IVA payments is generally not a sustainable solution and risks compounding the problem.
Common Questions About Loans With an IVA
Can a personal loan be added to an IVA after it has started?
No. An IVA is agreed with a fixed list of creditors at the point of approval. Debts taken out after the IVA starts cannot be added to the arrangement — they become separate obligations. If new debts accumulate during an IVA, they must be managed outside the arrangement entirely.
Will an IVA write off the full balance of a loan?
Not necessarily. An IVA involves repaying a portion of the total debt over the arrangement period. The amount written off at the end depends on what was agreed in the original proposal — which is based on what the person can afford to pay. Some people repay a relatively small percentage of the original debt; others repay more. The remaining balance is legally written off when the IVA is completed successfully, according to GOV.UK guidance on individual voluntary arrangements.
Does the type of loan affect IVA eligibility?
The type of unsecured loan does not generally affect whether someone qualifies for an IVA, but the total level of debt does. There is no statutory minimum debt threshold for an IVA, though in practice most IPs will only propose one where the total unsecured debt makes the process financially worthwhile — this is typically considered to be around £10,000 or more, though this varies by IP. Secured loans do not count towards this total and must be handled separately.
What if someone cannot keep up with IVA payments because of a new financial need?
The right step is to contact the supervising Insolvency Practitioner immediately. Taking out further borrowing to cover IVA shortfalls without IP approval risks breaching the arrangement. An IP can formally vary the IVA terms if circumstances have genuinely changed, or can advise on whether the arrangement is still viable — they have a legal duty to act in the interests of both the debtor and creditors throughout the process.