This page is general information about how an IVA works and what Islamic teaching says about debt. It is not debt advice and it is not a religious ruling. It has not been reviewed by a scholar and no scholar has endorsed it. For a ruling on your own situation, ask someone qualified.
There is no single agreed ruling. No major fiqh council has issued a resolution specifically on IVAs, and the individual scholars who have answered the question have not all answered it the same way. Be careful of anyone who presents one view as settled. An Individual Voluntary Arrangement is a UK legal agreement where you pay what an insolvency practitioner works out you can genuinely afford, for a fixed term set at the start, and if you complete it the balance left on the debts included in it is written off. Not everyone completes one, and not every debt can be included. Two things about it matter in Islam and they pull in different directions. A debt is treated as a serious obligation that should be repaid. Islamic teaching also states plainly that someone who genuinely cannot pay should be given time rather than punished.
What an IVA actually is
- It is a legal agreement between you and the people you owe money to.
- You pay what a licensed insolvency practitioner works out you can genuinely afford, rather than what you were originally asked for.
- It runs for a fixed term, commonly five to six years according to MoneyHelper and StepChange.
- It needs the agreement of creditors holding 75% by value of the debt that votes. Once it is agreed, creditors who voted against it are still bound by it. MoneyHelper explains the voting rules in full.
- While it is running, creditors included in it usually stop adding interest and charges and stop chasing you, as long as you keep to the terms.
- If you complete it, the balance left on the debts included is written off. Some debts cannot be included, for example most student loans, court fines and child maintenance arrears.
- Not everyone completes an IVA. If one fails, the debts come back, usually with the charges that were on hold.
It is a serious step with real consequences. It appears on a public register and it affects your credit file for years. It is also not the only option, and several of the alternatives cost nothing at all.
What the sources say about someone who cannot pay
"If it is difficult for someone to repay a debt, postpone it until a time of ease. And if you waive it as an act of charity, it will be better for you, if only you knew." Qur'an 2:280, Dr. Mustafa Khattab, The Clear Qur'an
The instruction to give someone in real hardship more time is worded as a command, and the majority of classical commentators read it that way rather than as a kindness the creditor may choose. A creditor who writes off what is owed is described as better, and as a form of charity. One difference is worth naming straight away: in the verse the creditor gives that up freely. In an IVA the outcome is reached by a creditor vote and then binds the rest by law.
Classical scholarship also developed detailed rules for a person who could not cover their debts, a state known as iflas. These included a supervised process that used what someone owned beyond their essential needs and protected the basics they needed to live. It is worth being precise about the limits of that comparison. Under the classical doctrine the debtor is given respite, and the scholars did not treat the remaining balance as cancelled by the process itself. It stayed owed until it was paid or the creditor chose to forgive it. An IVA ends differently, because the law writes off what is left. That difference is one of the reasons the question is not settled.
Islamic teaching is firm in the other direction too
It would be dishonest to leave this out. A debt is treated as a serious obligation. One well known hadith states: "Procrastination (delay) in repaying debts by a wealthy person is injustice" (Sahih al-Bukhari 2400). Scholars read "wealthy" here as anyone who has the means to pay and chooses not to. None of the mercy shown to a person who genuinely cannot pay is extended to someone who can pay and will not. That distinction, between cannot and will not, is the one that matters most here. If you are reading this and looking for a way to deal with your debt, you are not the person that hadith describes.
What one international fiqh body has said about insolvency
The International Islamic Fiqh Academy addressed insolvency and bankruptcy in Resolution 186 (1/20), adopted at its 20th session in 2012. It cites Qur'an 2:280 directly, states that a debtor who proves genuine insolvency should be given respite rather than punished and should not be imprisoned once insolvency is proven, and that a court should deal with the assets of a bankrupt person in the way most beneficial to both the creditors and the debtor. It also says that if it turns out the bankrupt has new assets, the creditors have the right to claim the unsettled part of their debt out of them, which is a real difference from an IVA, where the remaining balance is written off for good.
The resolution deals with insolvency in general terms under Islamic law. It does not mention IVAs, UK insolvency law or any modern debt solution, and it should not be read as approving one.
What is genuinely unsettled, and worth asking a scholar
We are not going to pretend the above answers the question. If you want to put this to someone qualified, these are the questions that actually matter:
- Consent. In classical remission of debt, the creditor forgives voluntarily. In an IVA, creditors holding three quarters of the debt by value agree and the rest are bound by law. Does that count as the creditors giving up their right?
- The write-off itself. Classical insolvency gave the debtor respite but did not cancel what remained. An IVA does cancel it. Does that difference matter?
- The interest already in the debt. Most UK debts contain riba. What is the position on repaying a debt through an arrangement calculated on a balance that includes interest?
- Intention. Islam weighs heavily the difference between someone who cannot pay and someone who avoids paying. How should someone entering an IVA hold that intention?
- The fees. An insolvency practitioner is paid for their work out of the payments made. Is that a permissible fee for a service?
Before you consider an IVA, here is free help
Free debt advice is available from StepChange, Citizens Advice and National Debtline, and MoneyHelper, which is government backed, can point you to a free adviser near you. They cover every option, including the ones nobody is paid a referral fee for. The National Zakat Foundation runs hardship grants for eligible UK Muslims, and Al-Mizan Charitable Trust provides small grants and interest-free loans.
An IVA is one option among several. For some people a Debt Relief Order, a debt management plan, or simply getting the right advice and some breathing space is a better answer, and some of those cost nothing.
Ask any adviser to explain why they are pointing you towards one option rather than another, and how they are paid. You are entitled to that answer from anyone, including us.
If things feel unbearable, please talk to someone. Samaritans, free, 116 123, any time.