One of the main rules of an Individual Voluntary Arrangement (IVA) is that you are not allowed to borrow more money while the agreement is in place without first getting the permission of your Insolvency Practitioner.
Generally speaking you will find it difficult to borrow more once your Arrangement has started because your credit rating will have become poor and most lenders will turn down your application for new credit. Having said that it is not impossible.
Many Payday loan companies will still lend to people who have poor credit ratings even if they have started an IVA. As such if you are facing a financial emergency during the Arrangement it is tempting to turn to this source of funds.
If you borrow more in this way the issue you then have is how to repay the new debt without missing your ongoing IVA payments. One option is to ask your IVA Company to add the new debt in your existing Arrangement. In certain circumstance they can help you do this. But what if they refuse? We discuss the alternative ways you may be able to deal with the new debt if you cannot include in your current IVA.
Can I set up a debt payment plan alongside my existing IVA?
If you have taken a new debt and your IVA Company will not allow this to be added to your existing IVA one option you have is to negotiate a plan with the new lender to repay them based on small affordable payments.
The issue with this of course is that you also have to maintain your ongoing IVA payments and therefore the only way that it is likely you will be able to find the money is to make savings from your agreed living expenses budget.
Making savings like this to allow any kind of sensible repayment will probably be extremely difficult and therefore may well be doomed to fail. So is there an alternative solution?
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Can I take a payment break from my IVA to pay a new debt?
If your IVA Company has refused to allow you to add a new debt into your existing Arrangement then rather than trying to pay the extra debt in addition to your IVA payments a better option is to take a payment break from these and use the money you save to pay the new debt off.
This is known as taking a payment holiday. It may well be that your IP will favour this option rather than having to go through the paperwork involved with adding the new debt to your existing Arrangement.
You should always suggest this option to your IVA company and they may well be willing to agree to it. You just need to be aware that the payments that you miss will be added to the end of your Arrangement so that your creditors receive the same return as was originally agreed.
Should I fail my IVA and start again including the new debt?
If taking a payment holiday is not feasible because the amount you have borrowed is too large to repay within a sensible time and you are unable to come to any other agreement with your Company to resolve the issue the next thing you can consider is allowing your IVA to fail.
If you let your Arrangement fail you then have the option of starting a new one with a different Company which does include the new debt. However you need to be aware that there may be a considerable issue with this course of action.
Any money you have already paid into your IVA is likely to be lost especially if you have been making payments for less than 12 months. This is because much of what you have paid will be taken in fees and will not go towards paying your debt. As a result when you begin a new IVA your payments will start from month one again.
Given this depending on your circumstances you may decide that rather than starting a new IVA all over again it would be better for you to use an alternative debt solution such as Bankruptcy. This could be particularly advantageous if you are not a homeowner or you have very little to no equity as your home would not be at risk and any payments towards your debt would only last for 3 years compared to 5 in a new IVA.
BMD Tip: It is not in your IVA Company’s interest for your Arrangement to fail because they will not be able to collect their full fees. As such if you explain clearly to them that unless they are able to help you add your new debt or have a payment break to allow you to pay it you will be forced to let the agreement fail, this may be enough to incentivise them into helping you.
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