What happens if my circumstances change while on an IVA?
IVAs last for five to six years and, during that time, there’s a chance your circumstances will change. That’s why your IP carries out an annual review every year.
You may find that your budget changes unexpectedly. Reasons your budget might alter include:
- a reduction or increase of working hours, or getting a new job,
- if you or someone in your family becomes ill,
- changes to your benefits,
- a new baby, and
- an emergency repair of an essential piece of equipment, such as a boiler.
For this reason, there is some flexibility built into IVA proposals to allow changes to your payments.
To alter your IVA, you’d need to tell your IP of any changes to your income (or outgoings) as soon as you know. Your IP will then decide what to do next, depending on how big the change is and how long it’s expected to last. If the change is large (such as receiving an inheritance), or will last a long time (such as getting a new job with a higher salary), you may need to review your IVA or propose a variation in its terms, which will have to be agreed by your creditors.
If your change in circumstances is only going to be short term, like if your boiler or washing machine broke down unexpectedly and you need to free up some cash to replace it, you can use what’s called a ‘provision for emergency expenditure’. This may mean you can miss one or two payments as long as you provide evidence that you have an emergency. The missed amounts will then be made up at a later date or added on to the end of the IVA term.
If the change is going to last for the medium-term but will not alter the amount that’s expected to be sent to your creditors by more than 15%, your IP may be able to approve it. However, if the change is going to result in more than a 15% drop in payments, you can apply to suspend these for up to six months. You would need to provide evidence of this and your IVA would be extended to make up the missed or reduced payments.
If the changes are going to be more long-term, you may find the payments you originally agreed become unsustainable. However, you might be able to get these payments reduced. Again, if the reduction that you need is up to 15% of what you’re paying now, it can go ahead without the creditors’ permission. If it’s going to be more than 15%, what’s called a variation meeting would be called. Here, your creditors would be informed that you need to pay less and the payments you make would be renegotiated.
Your creditors will get to vote on whether to accept the new proposal or not at this meeting. If you have requested a significant reduction to your payments, they may ask to extend your IVA so they can recover more of what they’re owed.
Your IP will check your financial situation on a regular basis to make sure that your payments are at the right level for your circumstances and that an IVA is still the right solution. They will also ensure there’s still sufficient evidence to back up their decision.
It may be the case that your payments could be reduced permanently and, if this happens, you would not be expected to make up the 15% difference in payment amounts.
One of the most common long-term changes that can affect the payments you make on your IVA is redundancy. If you lose your job while you are on an IVA, there are a number of things you’ll have to do. First, you need to inform your IP of your redundancy within 14 days of you being told, regardless of whether you’ll be receiving a redundancy payment or not.
If you are set to receive a redundancy pay-out, your IP will tell you how much you can keep to cover your living expenses until you’re able to return to work, and how much you will need to pay into your IVA. You also need to keep your IP informed of any changes to your employment situation, so let them know as soon as you find a new job. Remember that you can talk to a trained debt advisor at any time about how a redundancy might affect your IVA.
What happens if my outgoings change while I’m on an IVA?
You may have to start paying for something unexpectedly while you’re on an IVA. If this happens, your IP would look at the details and see exactly how this would affect your ability to make your payments. As we mentioned earlier, your creditors will need to agree to changes to your payments of more than 15%, so your IP may propose a variation to your IVA terms on your behalf.
If you do report any changes to your outgoings, you will be required to provide some paperwork to prove those changes. You’ll be expected to provide wage slips from your employer, benefit letters, or bills or statements from the organisations you owe money to in support of what you’re saying.
How much does an IVA cost?
There are usually three charges for entering into an IVA. These are paid out of, not in addition to, your agreed payments to the IVA. Basically, they are part of your monthly payment. They are made up of:
- Nominee’s fee – this fee covers your IP’s costs for preparing the IVA proposal, which details the terms of your IVA and gives your creditors all the details of your current financial situation. It also covers the organisation of the creditors’ meetings, where your creditors get to vote on whether to agree to the terms of your IVA proposal or to ask for changes to the proposed terms. This fee can range from £1,000 to £3,000 and is taken from your payments before anything goes to your creditors. It is usually no more than an amount equal to the first four to six months’ worth of payments to your creditors.
- Supervisor’s fees – this covers the work that’s required to deal with your ongoing IVA. It is usually charged when your IP makes payments to your creditors, and is worked out as a percentage of the money received from your monthly contributions as well as any assets and windfalls received by your IP. The amount is usually between 15% and 18% of the payments you make into your IVA.
- Costs and expenses – the IP is entitled to claim back their costs and expenses relating to your IVA. This will include items like postage and insurance costs that are directly connected to managing your arrangement.
How much you’ll have to pay in fees and expenses will be detailed in the IVA proposal. As with any of the terms of your IVA, you and your creditors will have an opportunity at the creditor meeting to ask for changes. Creditors do not have to accept an IVA if they feel that the proposed fees are too high. The IVA providers we work with are therefore mindful that their fees are reasonable and won’t hinder the proposal being accepted.
When it comes to Debt Advisory Centre and the IPs we work with, it’s important to point out that these fees will only be applied if your IVA is accepted. If it’s not, we charge you nothing. However, other debt solution providers may charge you for the preparation work involved in the IVA proposal even if it’s not accepted. It’s important to check what is and is not charged for before you make any decisions about which provider to use.
Can I have a joint IVA with my partner?
There is, strictly speaking, no such thing as a joint IVA. However, if you and your partner have joint debts that you both want included in the IVA, it is possible to put forward an ‘interlocking proposal’, which means you offer two separate but linked IVAs with a joint repayment schedule that’s based on one joint financial statement. Your proposal shows how all the debts would be dealt with, and if your IVAs are accepted, you would only incur one set of fees. This makes this option much more efficient and economical.
If you proceed with this option, your creditors will separately judge yours and your partner’s proposals and approve or reject each in the same way that they would a normal IVA for an individual. There will be two separate votes: one for your creditors and one for your partner’s creditors. For the IVA to be approved, at each vote the proposal needs to be accepted by creditors owning 75% of the value of your individual debt.
However, if you have joint debts, but your partner doesn’t need or want to enter into an IVA, there are important things to consider. When your IVA finishes, you are no longer responsible for paying anything towards the joint debts – your liability for the rest of the debt ends when your IVA ends. But your partner will continue to be responsible for repaying all of the remaining balance.
If this is the situation with you, it’s best to talk this through in detail with your IP and whoever is jointly responsible for the debt so you can decide if an IVA really is the right way forward for you, or if another solution would be better. However, when the IP’s team takes you through your income and expenditure, if you manage your finances jointly, an allowance would be made so your partner can continue to make their payments and won’t fall behind while you’re on the IVA.