Living expenses increase all the time. Income can also go down through wage cuts or a job change. If you are currently in an IVA and either of these things happen you may want to reduce your payments.
Jump to article contents:
- Are you allowed to reduce your IVA payments?
- When can you reduce your payments?
- What is the likely impact of reducing payments?
- Other options (payment break / cancel IVA and do something else)
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Are you allowed to reduce your IVA payments?
If you find that the increasing cost of living means that making your IVA payments is difficult you cannot simply reduce them. The Arrangement is a legally binding agreement between you and your creditors.
As such before you make any changes to the amount that you pay each month you must first discuss and agree the change with your insolvency practitioner (IP). You will normally have to prove your circumstances have changed by completing a new living expenses budget.
This also applies if you have a reduction of your income. This could be due to a job change, wages or overtime cut or a reduction in benefits. You will need to provide proof of these changes, supplying documentary evidence to your IP.
Your IP can approve a reduction of up to 10% of your monthly payment without getting creditor approval. More than this would require a formal variation of the IVA.
When can you reduce your payments?
Usually if the IP is satisfied that there is a genuine change, then a reduction is possible. For example an increase in mortgage or home rental amount could be significant, as would a loss of overtime. It is less likely that simply general living expenditures would be an acceptable change. You would have to budget accordingly as best you can.
If the reduction is over 10% then the the change would have to be approved by your creditors. This is done by applying for a variation.
If creditors believe the reason for the change is reasonable and unavoidable they will normally accept the variation. You will then be allowed to reduce your monthly payments.
If you notice a significant change in your income or expenditure, contact your IP quickly. Don’t take on any extra debt to try to maintain payments if they are unaffordable.
What is the likely impact of reducing payments?
A reduction of less than 10% of your payments will have no impact on your IVA. If the reduction is higher and a variation is needed then the terms of your IVA are likely to change.
For a variation to be approved, all of your creditors must be given the opportunity to consider the change and agree or disagree to it. As when the IVA was first set up 75 percent of the value of the creditors that vote must agree to the change.
It is possible that you might have to agree to increase the number of payments that you make overall. This is so that your creditors still receive the same return from your IVA. Normally the agreement would be extended for 12 extra months.
If you are paying a lower amount into your IVA, any reduction may make it impossible for the arrangement to continue. If your monthly payment is £80 or less currently, it is likely you will need an alternative solution.
Other options (payment break / cancel IVA and do something else)
It is possible that an application for a variation is unsuccessful. If the creditors refuse the reduction then you would have to continue to make the payments as before.
There are still options in this instance, but you must take advice before choosing any of these. Of course if you can simply make cuts to your expenses then that would be the best solution. If the situation is temporary and you think you only need a few months grace, you may be able to agree a payment break. You would need to ask you IP about this.
Perhaps a more serious step would be to stop your IVA payments and allow the IVA to fail. You must take advice before doing this, but it may simply be the best option if you can no longer afford the payments.
Usually a failed IVA would lead to Bankruptcy. Whilst often considered the last resort, Bankruptcy can sometimes just be the right solution. Call us to find out more and ensure that you make an informed choice.
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