If you have borrowed a new Payday loan during your Individual Voluntary Arrangement (IVA) the problem that you will now face is finding the cash to pay the loan as well as keeping up with your agreed monthly payments.

One option you might consider is simply rolling the Payday loan over in the hope that you will be able to find more money next month to pay it. However this is generally a mistake. Because all of your spare money is being paid into your Arrangement the repayment of the loan will always be extremely difficult.

So what can you do? We explain your options if you are struggling to afford your IVA because you have taken a new Payday loan and how you will be able to continue with the arrangement.

How will my IVA company react if I have taken a new Payday loan?

If you are struggling to pay your IVA because you have taken a new Payday loan the first thing you must do is speak to your management company and explain what has happened. Of course they will not be happy with you because one of the terms of your agreement is that you will not borrow more money without first getting their approval.

Ultimately they could fail the arrangement because you have broken the terms. However in reality they are unlikely to want to do this because it is not in their interest as they will earn no more fees.

Your case worker may tell you that the loan simply has to be repaid otherwise they could fail the Arrangement. Clearly this is impossible for you and so at this point you need to understand that there are some alternative options available which you should bring up.

BMD Tip: If you are concerned about the possibility of legal action being taken against you after you have borrowed more during your IVA there is no need to worry about this. It is not against the law and there is no chance of prosecution. The greatest risk is that your Arrangement could fail.

Do you want help to start an IVA? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Can the new Payday loan be added to my existing IVA?

Your Insolvency Practitioner (IP) does have the power to add a new debt into your existing IVA. If you are not offered this option then you should certainly ask about it.

If the amount of the new loan you have borrowed is less than 10% of the total debt already included in your Arrangement then your IP can include it without having to get agreement from your original creditors. However if the amount you have borrowed is more than 10% then they will have to make a formal request to include it known as a Variation.

Generally speaking if your IP makes a reasonable case to your creditors on your behalf this variation will be agreed. However you might have to agree to increasing your monthly payment or to extra payments being added to the end of the arrangement although this is not normally for more than an extra 12  months.

Can I take a payment holiday from my IVA?

If your IP is reluctant to add your new loan to your existing Arrangement the alternative option you can discuss with them is taking a payment holiday.

This means that they allow you to stop making your payments for an agreed period so you can save this money to cover a financial emergency. There is no reason why a payment holiday cannot be used to save the cash you need to repay your payday loan.

This can often be a better option than adding the debt to the existing agreement because your IP can agree a payment break without having to get authorisation from your creditors.

BMD Tip: The payments you miss will have to be added to the end of the arrangement and there is no requirement for you to pay more each month to catch up.

How can I avoid borrowing more during my IVA?

A monthly payment IVA normally lasts for 5-6 years. During this time it is highly possible that you will face a financial crises. Instead of borrowing from the likes of payday lenders to get over this you should first speak to your IVA company about a payment holiday.

If your request is reasonable then there is no reason why they should not allow you to have a few months without payments to enable you to save or pay for your financial crisis. Your Arrangement is likely to be extended by the number of months your miss to make sure your creditors receive the original agreed amount but this is a far better option than borrowing more.

Having said that if the reason why you considering borrowing more is not due to an unforeseen crisis but because you are simply struggling to keep up with your agreed payments this is potentially a much more serious issue.

It is possible that your living expenses budget has been incorrectly calculated because you have underestimated certain costs or missed some out completely and so you have agreed to pay more than you can afford into the arrangement. If you believe this is the case you must tell your IVA company and ask for a review of your living expenses. Depending on how much you are paying already you may be able to increase your living expenses budget and reduce your monthly payments.

BMD Tip: If your IVA company tells you that it is impossible to reduce your ongoing payments and you feel that you cannot realistically afford to continue to pay at the original level then you should consider allowing your Arrangement to fail and using a different debt solution which is more suitable for you.