IVA definition and what it means for you
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If you're on an IVA, your payments aren't set in stone - they might go up or down if your situation gets better or worse.
We all get into a pickle with money now and again. It’s what you do about it that makes all the difference to your future financial position, and how easy it’ll be to get credit in the future too. In this two part blog, we'll look at the options available for changing the payment amount on an IVA. Today we'll look at what happens if you can't afford the payments anymore and what you should do if your having a change in circumstances that's only short term. And tomorow we'll look at medium and long term changes.
If your debts are becoming unmanageable, one of the ways you can start to regain control of your finances is by entering into an Individual Voluntary Arrangement (IVA). It can give you the opportunity to pay back some of what you owe with pre-arranged, affordable monthly payments. After an IVA has finished, any unsecured debts that were included in the agreement would be written off – giving you that light at the end of the tunnel.
Whilst an IVA could be the right debt solution for you, we understand that you might worry because it’s a legally binding solution. What happens if you find yourself in a situation where you can’t afford the repayments you’ve agreed to? Well, hopefully, by the time you’ve read this blog you should understand, what you can and cannot do with your payments when you’re on an IVA. Having this information will allow you to make an informed decision, along with a money advisor, about whether it’s the right solution for you.
Changes in circumstances
No two IVAs are the same, after all the ‘I’ does stand for Individual! So we understand that people’s circumstances don’t normally stay exactly the same over five to six years (the normal length of time it takes to complete an IVA). You could, for example, change jobs and suffer a loss of income. But first, let’s look at what you must do as soon as you know you’ll not be able to make your payment.
What happens if I can’t afford the payments anymore?
If you know that you’re going to have trouble making your payments you must tell you Insolvency Practitioner (IP) as soon as possible. Don’t panic if you find that you simply can’t afford the payments anymore – your IVA won’t automatically fail, your IP will try and make provisions for you, if it’s possible.
Maybe you’ve found yourself in a situation where it’s just the one payment that you can’t make. Say, your boiler, washing machine or car decided to breakdown, you would probably need to replace it pretty quickly, so money allocated to other things, like your IVA, will have to be moved around – there’s little you can do about it.
In your IVA agreement, there’s something called “the provision for emergency expenditure” and it’s set-up for these kinds of situations. You might be able to miss the one payment, as long as you provide evidence of the emergency expense, and then you can arrange to catch-up at the end of the IVA or just later on down the line.
If the problem is more long term, you’d be able to miss payments for a maximum of six months. Again, if this happens you need to send in evidence of the costs that you’re dealing with, and explain why you can’t make the payments. In this situation, your IVA would be extended – so if you missed six months of payments, your IVA would simply last six months longer than you originally thought.
You might find yourself in a position where you don’t think that you can carry on with your IVA at all, unless the payments are lowered to a more affordable level. This might be possible to arrange, depending on your situation. If you can show there’s been a long-term change in your circumstances, and you’re not asking for a huge reduction, (the IP would not be able to lower it by more than 15% of what you’re currently paying) then the payments could be lowered. Every now and again your IP would look at the arrangement and check that it is still the right fit for you and that there’s still evidence to support it. If everything is as it should be, the payments may be permanently lowered. And in this case you wouldn’t need to catch up with the missed payments. If you had agreed to pay the creditors a certain amount of what you owe back, say 25 pence in the pound, (known as a dividend) then the IVA may be extended so that you could keep to that agreement.
What if it’s a big long term change?
If you’ve worked out that you need your payments lowering by more than 15%, it’s going to take some renegotiation with your creditors, which your IP will do on your behalf by arranging what’s called a variation meeting. In a variation meeting we’d explain how your circumstances have changed, how it’s affected your ability to pay and what would be affordable going forward. The creditors then vote whether or not to ok the change. You'll need approval from at least 75%, by value, of your voting creditors for the change to go ahead. For example, your total unsecured debt is £50,000 and creditors with a total value of £25,000 accept the change, but creditors with a total value of £7,000 reject your proposals. The total amount of creditors who have voted is £32,000, so the percentage of voting creditors who have accepted is 78% and the change will be approved.
If your creditors can see that the reduction in what you’re paying them each is quite significant, they may ask whether your IVA can last longer, to make up for this. Each case will be slightly different and is judged on its own merit, so your IP would work with your creditors to come to a new arrangement, that’s fair for everyone.
What if my situation improves?
When you’re on an IVA, you should always try to pay back what you can towards your debt. This is worked out by looking at your disposable income. Disposable income is the income that you have left after all your essential bills and everyday living expenses have been accounted for. So if your disposable income increases, then things can work out the other way and your monthly payments may increase.
For example, you’ve started a new job with a better salary. If everything else in your life remains the same, you’d be expected to contribute more each month to the IVA. But, what if that new job was further away from your home and your travel expenses went up? In that case, we may not raise the payments, because even though you’re earning more, n effect, your disposable income has not actually gone up. We’ll always look at your situation and make sure any rise is affordable.
So there you have it. Each IVA is slightly different and the amount you’ll pay towards yours will be decided by your individual circumstances. It’s important that you understand how debt solutions work before you enter into one, so have a look at our general page on IVAs to become familiar with them. If you don’t think that an IVA sounds right for you, maybe a Debt Management Plan would suit you better – read all about them here.
by Christine WalshBack to blog home