What Is An IVA?
An Individual Voluntary Arrangement (IVA) is a long-term, legally-binding commitment to clear personal debt. Over the term of your agreement, normally five years, you are legally obliged to make a monthly repayment towards your IVA until the full amount that was agreed at the start of the IVA is paid.
Over the five years that your agreement is in place, your circumstances may change. You may find yourself redundant, or forced to take a lower wage. You may have (more) children or get divorced. All of these events can affect your income, and that may have consequences for your IVA repayments.
How to Cope When Your Income Goes Down
If your salary is reduced, the most important thing to do is tell your IVA company immediately. Your Insolvency Practitioner may arrange a meeting with your creditors to negotiate a new, lower payment that you can afford on a reduced income, or to make a one off offer to them if any lump sums are available.
This process is very similar to applying for your IVA initially; 75 per cent of your creditors must agree to the terms your Insolvency Practitioner proposes.
In the worst case scenario, your new payment plan will be rejected and your IVA will be terminated. From there, one of two things will happen:
- You will need to continue to repay your debts as you were before, including any fees that were associated with your original IVA.
- You may choose to go bankrupt, which may result in you losing your home.
In both situations, the original IVA is null and void. That means that all of the debt you originally owed will be repayable – not just the reduced amount that was agreed under the IVA.
Avoiding IVA Termination
It is far better to continue with your IVA if at all possible. You may have to change your lifestyle or make some sacrifices in the process.
- Try getting a second job or increasing your income by working overtime.
- Declutter on eBay or at car boot sales to bring in some extra money that could tide you over.
- If you have a spare room, consider renting it out to a lodger.
- Create surplus cash by making lifestyle changes; cut back on any hobbies and social events, and sell your car if you can do without it.
- Get rid of any expensive contracts such as satellite TV, and downgrade your mobile phone and tariff.
- Cut your budget for special occasions, birthdays and Christmas.
- Ask family members to assist you by making up the shortfall.
IVAs are a form of insolvency, so anyone thinking of taking out an IVA should seek expert advice before proceeding. It’s important not to take out an IVA if you have any doubts about seeing it through to its conclusion. If you are unsure and need further advice check out Varden Nuttall’s website at www.Vardennuttall.co.uk