When debts become unaffordable, it is common for people to continue borrowing just to cover normal living expenses. But will your creditors accept an IVA if you have recently used credit?
Included in this article:
- Starting an IVA if you have recently taken a loan
- What if you have recently used your credit cards?
- Can you use the remaining credit on your cards?
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Starting an IVA if you have recently taken a loan
With the availability of payday loans in recent times it has been increasingly normal for people to take a new loan just before they decide that they need to use an IVA (Individual Voluntary Arrangement).
In most cases where these loans are smaller amounts, it does not prevent the agreement from being accepted. However if the amount of the recent debt is large, it can cause problems. If the creditor has more than 25% of your total debt and refuses your application, it will be rejected.
If you have just taken a large bank loan, you may have to consider using a debt management plan for 6 months before applying for the IVA. Even then the creditor does not have to accept the offer.
For the IVA to be accepted 75% of the value of the creditors who choose to vote, must say yes.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
Starting an IVA if you recently used credit cards
If you have credit cards it is normal that you will have continued to use these right up to the point where you decided to start an IVA.
This along with any arrears from your monthly payments will not normally stop your IVA application from being accepted. However once you have made the decision to apply, you should stop using your credit cards.
Do not worry if the only way you have been paying your monthly living expenses up to this point is by using your cards. You will no longer be paying your creditors. This is how you break out of the debt cycle you are in.
If you have a joint credit card make sure you have told the joint card holder to stop using the card. The best course of action is to cut up both of the cards.
Can you use the remaining credit limit on my cards?
Once you have decided to enter an IVA, you may be tempted to spend any remaining credit on your credit cards, but you should not do so. If you do it may lead to this creditor rejecting your IVA application.
One thing you can do to ease your finances is to stop paying your creditors. This can free up a considerable amount which you can then use to pay for your everyday expenses such as groceries and fuel until next pay day.
If you stop paying your creditors they will start to contact you and demand payment. When this happens be honest. Explain that you are in financial difficulty and have taken debt advice. Tel them you are in the process of applying for an IVA and ask them to put your account on hold for a month or two. Most will give you this help.
Creditors will look at what you have recently purchased. If you have bought an expensive luxury item shortly before your IVA application, they will be less likely to accept your offer.
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Can I get an iva ? I have more going out then coming in. Also I recently topped up a loan that I do not want to add to the iva. Is that possible?
Hi Kesley
If you are unable to afford your debt payments then it certainly sounds as though you need to use some kind of debt management solution.
An IVA might be a sensible option for you depending on your circumstances. However if you are considering this solution you would have to include all of your unsecured debts. You cannot leave out the loan you recently topped up. Your other creditors would be likely to refuse to accept an IVA unless everyone you owe money to is treated equally (ie they are all included).
You mentioned that you have topped up this loan recently. Given it is not a brand new creditor (and depending on what you spent the money on) it is likely that this debt can be included in your IVA. If you want to discuss this in more detail don’t hesitate to contact me (0800 077 6180).
Hi, I have my iva creditors meeting next week. I had been using my credit cards for everyday living expenses right up until I applied for my iva. The amounts were small mostly under £10 each time. Will the creditors reject my iva because of this? Thank you.
Hi Francesca
I think you will be OK. It is quite usual for people to have used credit cards right up to the point when they start their IVA application. As long as your recent expenditures were not large and you tried to stop all further use of credit after you made the decision to apply it should not be a problem.
As a slight aside the way to stop using credit once you have decided to apply for an IVA is to stop making the repayments. This should free up sufficient cash to allow to you pay for your living expenses without spending more on your credit cards.
If your creditors contact you during the application period (which will be around 4 weeks) just be honest. Tell them you are applying for an IVA and ask them to put your account on hold to give you time to get it done. Most should be willing to help.
I have spoke to a IP today to put together an IVA Proposal. One of my debts is a NextPay account – my children are in need of new clothing but at the moment I cannot afford to buy them until my IVA is accepted (if I is) I am including my NextPay account into the IVA – would adding to that account make a difference to the acceptance? I know I just need Tesco and Virgin to agree to get the 75% acceptance. Thank you
Hi Tanie
If you are about to start an IVA I would strongly recommend that you do not continue to use any of the accounts you plan to include in the agreement. Normally it will only take 2-3 weeks to get your IVA in place so it is not long to wait.
A better idea would be to stop making any further payments to any of your creditors. You can certainly use any money you save in this way to by clothing for your children. If for some reason your IVA is not accepted you will be in no worse position. You will still need to manage your debt and the next best option is likely to be a debt management plan where you would have to stop your payments anyway