How long does an IVA last?
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When you start an IVA you agree to pay in what you can afford - after living costs - into it for a fixed term, usually 5 years. In return your lenders agree to write off any remaining debts at the end of the term.
But what if your circumstances unexpectedly improve? Is it possible to avoid your obligation to pay the extra money into your arrangement? In fact, the internet is full of people searching how they can avoid paying money into their IVA.
Financial changes whilst on IVA
It’s important to remember that an IVA is a legally binding agreement - on both you and your creditors. While a positive financial change is always great, hiding it from your IVA is not. To keep your creditors up to date with your progress, you’ll be expected to complete several financial reviews with your provider and show them evidence such as bank statements and pay slips. This makes hiding money almost impossible and if you try to do so you’ll be placing your IVA at risk.
Let’s look at when you might be expected to pay additional money so your IVA is never at risk.
The IVA windfall clause
Windfalls such as inheritance or a lottery win are by their very nature unexpected. If you receive a lump sum you should check if your IVA has a windfall clause. If there is, any windfall you receive will need to be paid into your IVA.
If the amount you receive is larger than your remaining debt, you’ll need to cover that plus any outstanding fees and statutory interest and you’ll be able to end your IVA early. For windfalls that aren’t as large as your remaining debt, the full amount will need to be paid in. Windfalls under £500 do not usually need to be paid into your IVA.
Pay rises whilst on an IVA
If your income has increased on a permanent basis, you should contact your IVA provider. By completing a change in circumstances review, they’ll be able to check whether your monthly payments should change. Not all pay rises will result in a monthly repayment increase - for example your expenses may also have increased. However, failing to make your provider aware could jeopardise the long term success of the IVA.
Pensions on IVA
Pensions also class as an income. If your pension starts you should contact your IVA provider. Some of it may need to be paid into your IVA before it can successfully be completed.
Bonuses, commision, and overtime on an IVA
Unlike a pay rise, income into your household can sometimes be unpredictable. Bonuses, commision, and overtime, are examples of unpredictable income. The IVA terms give you a 10% leeway on your allowed income. Once you go over that 10%, additional money would need to be paid in.
Let’s take a look at a potential scenario:
- • Current stated “allowed income” agreed as part of your IVA: £1,000
- • 10% leeway: £1,100
- • Monthly salary with overtime: £1,500
In this case, you would have gone your 10% leeway by £400. The terms of the IVA state that half of what you have gone over your leeway by must be paid in as additional money.
Therefore, in this case, £200 would need to be paid in.
Some IVA providers won't always do this from month to month. They may look at your average income across a pre-defined number for months; for example, over six months. Make sure you know how often your IVA provider does these checks so you can monitor this yourself.
Keep in mind
It’s always better to pay money that is due into your IVA as soon as you receive it. However, It may be several months, even years before you realise additional money must be paid in. If this is the case, it can be tempting to try to hide money from your IVA. We would strongly caution you against this. Instead, speak to your IVA provider. If your provider believes that you have money that should have been paid into your IVA but hasn’t, and you don’t agree to do so, they may ‘fail’ your IVA. As a result you may end up going bankrupt, and it is likely that you will end up paying the money into your bankruptcy.
Both you and your IVA provider want your IVA to succeed, so you can complete it successfully and emerge free of the debts it contained. That’s why it makes sense to work closely with your provider to find the best option for you.
by Christine WalshBack to blog home