How to get debt free in a year
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
Learn what happens if you’re made redundant during the life of your IVA.
If you’re considering an Individual Voluntary Arrangement (IVA) as a way of dealing with your unmanageable, unsecured debts, you probably have a lot of questions about how they actually work. Well, don’t worry – we’re here to explain everything you need to know.
Today we’re tackling the question of redundancies, particularly whether you have to put your redundancy pay-out into your IVA.
Be sure to keep your provider in the loop
If you’re on an IVA and you lose your job, the first thing you need to do is tell your solution provider about this, and this should be done within 14 days of your finding out about it. If you’re being made redundant and getting a pay-out, you also need to tell them how much you’re getting within 14 days of the amount being confirmed.
Your Insolvency Practitioner (IP) will look into your situation and tell you how much money you need to put towards your debts on the IVA and how much you can keep for yourself. There’s a specific clause that deals with redundancies in your IVA agreement – it doesn’t come under the windfall rules. Exactly what happens will depend on how likely you are to get a new job soon and how much money you get from your pay-out.
If you get a pay-out
If you get a substantial pay-out, you’ll get to keep enough to cover six months net pay. So you’ll be able to afford everything as normal, including your IVA payments for six months while you look for another job. Anything over the amount of six months net pay must be paid into your IVA.
If you happen to start earning again within the six months, your provider will review your monthly payments and anything left over from the six months net pay will need to be paid into the IVA.
If you don’t get a pay-out, then your Insolvency Practitioner will look to see whether you can take a payment break. This will give you up to six months where you don’t have to pay anything towards your IVA. Your IVA will be extended by the number of months that you have not made payments at the end, so you can make up the difference.
It’s really important that you keep your solution provider up-to-date with what’s happening with your employment status, so if you find a new job, you should tell them straight away.
If you get a large pay-out
In some cases someone on an IVA gets a redundancy pay-out large enough that they’re able to pay all their debts off in one go, or a significant portion of them. If you pay all your debts off in full, there’s no need for any kind of proposal and your IVA will simply finish early.
In some cases, your IP may be able to propose to your creditors that they settle the debts. This is when you offer less than what you owe, but if the creditor accepts the amount, the debt is considered written off. If the creditors can see that you have no disposable income now and that you are out of work with no reasonable prospect of getting a job, they may decide to accept a settlement figure even though it’s less than the amount they were originally going to get back. Your creditors aren’t allowed to contact you for payments if they accept the settlement figure.
There’s not a ‘one size fits all’ way of dealing with redundancy while you’re on an IVA – it does depend on your situation. Remember, that your IP is there to support you throughout your IVA and will explain what you need to do, the most important thing to do is keep them informed.
Is an IVA right for you?
An Individual Voluntary Arrangement (IVA), is one formal way to deal with insolvency. This means that you can’t afford to pay your debts as you originally agreed to, or that your debts are worth more than your assets.
It could be suitable for you if you can afford to pay a regular amount towards your debts, but realistically can’t repay everything that you owe. It normally lasts for five-six years and, as long as you complete the solution successfully – which includes paying everything that is due into the IVA – the rest of your unsecured debts on the plan will be written off.
Got more questions about this solution? Make sure you read our comprehensive guide on IVAs.
There are other solutions that deal with debts. Bankruptcy and Debt Relief Orders (DROs) are two more that offer formal ways to deal with insolvency. And a Debt Management Plan (DMP) is an informal method of dealing with problem debts.
All the solutions differ in terms of how they work and help people in problem debt. The best way to find out which solution will help you is to speak to a debt advisor. The options at the bottom of the page will put you in touch with one of our advisors today. With their expert knowledge and training, they’ll be able to have a chat with you about your situation and find the best way forward.
by Christine WalshBack to blog home