What happens if my circumstances change during an IVA?
Generally speaking a monthly payment Individual Voluntary Arrangement (IVA) will last for 5 years (or perhaps 6 if you are a home owner).
During this time it is quite normal for your financial situation to change. For example your income might go up or down and or your living expenses may change for some reason. If and when these things happen they are likely to directly affect your ability to pay the Arrangement.
We explain what your options are in these circumstances both whether it is possible to reduce the amount you pay if your situation becomes worse and whether you will be asked to pay more if your finances improve.
What if my income gets better during my IVA?
If your financial situation permanently improves during your IVA perhaps because you have received a pay rise you it is likely that you will have to start paying more into the Arrangement each month.
However you will not have to hand over 100% of your increase. First you will need to complete a new income and living expenses statement and calculate your new disposable income. If this has increased you will then have to increase your payments by 50% of the increase.
The other 50% is be yours to keep. This acts as an incentive for you to strive for pay increases where possible.
BMD Tip: During the Arrangement your circumstances will be reviewed once a year as standard. However if you have any changes to your circumstances particularly if your finances improve which will mean you can pay more it is important to inform your IVA company immediately.
What if my income gets worse during an IVA?
If your income falls during your Arrangement meaning that you can no longer maintain your payments you need to inform your IVA company immediately.
The most usual reason for your personal circumstances to get worse is that you or your partner have a problem with your jobs which effects your income. Of course this situation could equally arise due to illness or other unforeseen circumstances.
There are generally three different scenario’s to consider:
1 – Your income reduces temporarily
If you lose your job but you are confident that you will find a new one quickly or perhaps you have a period of illness your IVA company should be able to arrange for you to take a payment holiday from your payments.
This means you can stop making your payments for the number of months of your unemployment. Once you get back to work you start your payments again. The ones you have missed are added to the end of the Arrangement so your creditors are always paid the same amount.
2 – Your income reduces permanently
If you lose your job and find another one but your new take home pay is less than your previous pay this will mean that you cannot continue to make your agreed payments.
If the reduction is not more than 10% of your original payment then your Insolvency Practitioner (IP) can make a decision to reduce your payments without asking your creditors . If the reduction is more than this then your IP will have to submit a formal request (called a variation) to your creditors.
If agree then you continue to pay your IVA at the reduced rate. You will need to expect that your IVA will be extended to compensate for the reduction in your payments.
If the creditors do not agree the variation then your IVA will fail if you cannot continue making your payments at their original level. You will then have to make other arrangements to deal with your debts.
3 – Your income is lost entirely
If you lose your job and there is no prospect of you securing a new one and you are unable to continue paying any monthly payments the first option to consider is whether or not you can offer a single lump sum payment to settle your IVA. This might be possible if you have been made redundant and have received a redundancy payment.
If you cannot make a lump sum available but you very near the end of the Arrangement it may be possible for your IP to negotiate a full and final settlement based on the contributions you have already made.
If you cannot continue to make any contributions and you are unable to offer a lump sum and your creditors will not agree to accept what you have paid already in full settlement then unfortunately the Arrangement will fail.
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What if my living expenses change during my IVA?
If your living expenditures change while you are in an IVA this is likely to have a direct affect on your ability to make your monthly payments.
A common example of a reduction in living expenses is if a car finance agreement ends. If this happens, the money that you were paying towards this will then have to be added to your IVA payment meaning that the amount you pay overall will increase.
You may also experience an increase in your living expenses. If you have specific increases such as an increase in your rent or mortgage payment you must report this to your Insolvency Practitioner (IP) immediately.
If the increase is unavoidable and permanent your IP may be able agree a reduction in your payment to compensate. However as with a similar reduction in your income, if the increase in expenses is significant meaning you can no longer manage to make any payment the Arrangement might be at risk of failure.
BMD Tip: Generally will not be able to reduce your payment for non specific living expenses increases such as “the general increase in the cost of petrol” unless the change you have experienced is dramatic for some reason such as the distance you have to drive to get to work has significantly changed.
What if my circumstances change during my IVA?
Your circumstances may change during your Individual Voluntary Arrangement (IVA).
What happens if your income improves or you get a windfall?
Can you reduce your payments if your situation gets worse?
What if I receive a windfall during my IVA?
If while you are in an IVA you receive an unexpected lump sum payment such as a redundancy payment, a compensation payment or inheritance, you have to inform your insolvency practitioner (IP) of this. You will normally have to hand this over to them for the benefit of your creditors.
As with any increases to your normal monthly payments receiving a windfall will not mean that the agreement ends any sooner. You will still have to continue to pay your monthly payments. It simply means that your creditors will receive a greater return.
On rare occasions after receiving a windfall it may be possible to agree with your creditors that your IVA will then be settled in full. However this is generally if the windfall is as a result of redundancy for illness and subsequent monthly payments will be impossible.
Always inform your IP of changes to your finances
The key to dealing with any changes to your financial circumstances while you are in an IVA is always that you must inform the Insolvency Practitioner as soon as possible. They will then explain the impact of the change and what you will need to do next.
If you do receive an increase in your income do not try to hide it from your IP in the hope that you will not have to increase your payments. Normally it will become apparent at your annual financial review where you will be asked to present recent wage slips and bank statements.
If it then comes to light that you received a windfall that you did not declare which was spent on something else it could put your whole Arrangement at risk.
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