Can I Afford An IVA?

Can I Afford An IVA? (Individual Voluntary Arrangement)

An IVA may help you manage lots of debts – but it may not cover them all. Here’s how to ensure it’s a reasonable, affordable option for you.

Does an IVA cover all my debts?

No. It does cover a wide range, though, so if you have any of the following, an IVA will be one way of managing them:

• Overdrafts
• Credit cards
• Personal loans
• Payday loans
• Catalogue debts
• Pay later debt
• Store cards
• Income tax and National Insurance arrears
• Council Tax arrears
• Utility arrears (gas, electric, water)
• Benefit overpayments
• Other outstanding debts, for example to family and friends, vets, tradesman, solicitors etc

Other forms of debt are either excluded from IVAs (e.g. you can’t use an IVA for court fines, child support arrears or student loans) or are technically included, but unlikely to be approved by your creditors.

In theory, for example, there’s nothing to stop your mortgage, rent arrears or any debts secured against your home being included in your IVA, but creditors are required to give their permission for this to happen – and that’s very unlikely.

That means, even with an IVA approved, you may find yourself with other payments to make. So before you agree to take the IVA route, you need to be sure you can afford the repayments.

What will my IVA payment be each month?

Everyone’s payment is different. It’s calculated based on your income and outgoings and you’ll need to have enough spare at the end of the month to afford your IVA.

What’s the minimum IVA repayment?

There is no fixed lower limit, but the whole point of an IVA is to ensure your creditors receive at least a proportion of the money you owe. Unless you can meet a minimum level of around £100 per month, they’ll be unlikely to agree to the IVA.

How can I ensure I can afford my IVA?

Consider the following questions to decide whether an IVA is right for you:

Is your income regular? Whilst an IVA can be flexible, it’s not so flexible that you can vary the payments every month. In general, you’ll need to stick to the agreed amount. If the nature of your work makes that difficult, you may need to look at other debt management options. Talk to us about them now.

Is the debt high enough? It may seem odd, but if your debts aren’t above a certain level, you may pay more via an IVA than via some other debt management routes. The minimum debt for which an IVA becomes viable is typically £10,000. The amount for a Scottish trust deed, however, is less – see below.

Have you worked out your budget? It’s important to be honest with yourself as well as your IVA provider. There’s little point inflating your income or hiding outgoings to secure an IVA. You’ll quickly run into repayment trouble and that could mean the IVA fails. The IVAs that work best are the ones where you’re open, honest and realistic about your situation, so the repayments can be set accordingly.

Can you increase your income? If your income isn’t currently enough for you to meet your minimum IVA payment, could you increase it? This isn’t always an option, but it may be appropriate if you can:

• Switch from part to full-time work
• Increase your rostered hours
• Take advantage of any regular overtime
• Take a promotion
• Take on additional duties that lead to a pay rise
• Take an additional job

What if my income goes down during the IVA?

Whilst you might be able to afford the IVA initially, things can change. Fortunately, IVAs are flexible so they can be adapted – within reason – to suit your changing circumstances. Depending on your situation, it’s possible that your payments could be reduced for a period of time. The length of your IVA could also be extended. An extension to six years rather than five is not uncommon. Longer extensions are rarer but can be arranged. According to The Government’s latest figures:

“9% of IVAs registered in 2011 and 3% in 2010 were still ongoing, having started around 7 or 8 years earlier.”

How else could I lower my IVA payments?

If you can’t afford the minimum monthly payment for an IVA, you could lower that minimum in a variety of ways:

Lump sum: Windfalls (e.g. inheritance or lottery wins) will be taken into account when working out your IVA, but other lump sums may be treated differently. If you can arrange a lump sum gift from a relative, for example, it may be sufficient to lower your monthly payment.

Pension: If you’re over 55 and have a defined contribution pension you may be able to release a portion of the money in your pension and put it towards your IVA. This will, however, reduce your pension. It’s not an option to be considered lightly and you should seek professional advice before making a decision.

Assets: If you can put something of value into your IVA ‘pot’ you may be able to lower your monthly payments. Property, land, cars, art or jewellery could all contribute to lowering your debt. Be aware though, that they could also be used to increase the total portion of the debt you repay rather than helping you lower your payments – so seek independent advice first.

What happens if I miss an IVA payment?

Quite possibly nothing, providing you let your IVA practitioner know as soon as you realise you won’t be able to pay. There’s flexibility built into the system to extend your IVA or alter later payments if you can’t make the occasional payment.

If you believe you’ll be unable to make any payment going forward, however, see our guide What if I Can’t Pay My IVA?

What’s the situation in Scotland?

Scotland uses protected trust deeds (also known as Scottish trust deeds) rather than IVAs. The goal is much the same, although some of the details vary. Some of the differences between IVAs and Scottish trust deeds can have an impact on affordability. For example, you’ll only need £5,000 of debt (half of the amount required by an IVA) and the term can be as low as 4 years.

To find out whether a protected trust deed could be the right route out of debt for you, talk to us now.