If you can’t make the payment to your Individual Voluntary Arrangement (IVA) this month, don’t panic! There may be options for you to cope and get your IVA back on track.
IMPORTANT in 2022 there is now a special case – if you cannot afford the repayments mainly because of rising prices and bills. For that situation new rules have been introduced and there is a LOT more help you can get – see Help with IVAs if you can’t pay because of the cost of living. The article here isn’t relevant if inflation is the cause of your difficulty.
This article covers the general case when you cannot afford the payments to your IVA for other reasons. This is very common – five or six years is a long time for everything to go smoothly in your life.
You do need to talk to your IVA firm even if you know the problem is very temporary and you can pay a few weeks late.
If your problem is longer term, you don’t have to wait for your annual review. Talk to your IVA firm about getting your IVA payments reduced.
What can cause problems for IVAs
Increases in your expenses can make your IVA payments unaffordable:
- a new baby or increased chaildcare costs;
- large, unexpected expenditure such as a new boiler or expensive car repairs;
- having your car finance end. This is a very specific case, so read Car Finance in IVAs for what your options will be.
Other times a crisis happens because your income is reduced:
- losing your job or having your hours cut;
- lower profits if you are self-employed;
- being unable to work;
- having a cut in benefits.
Take a payment break
IVAs have terms included that allow some flexibility if you have an unexpected one-off expense or a drop in income that may be temporary.
This is often the ‘first response’ if your IVA seems to be running into serious problems – take a break and see if things improve by the end of it.
If you have a large unexpected expense, a payment break (or reduced payments) will let you save up the money to replace the boiler or even buy a cheap second-hand car if your car finance has ended.
Your IVA supervisor has to approve it, so you won’t be able to have a break to pay for a holiday.
Typical break terms
The common terms are:
- you can have payment breaks or make reduced payments for the equivalent of 9 months payments.
So if you could pay half your normal payments for a 6 month period, this would count as “3 months” of the maximum 9 months used.
- this doesn’t have to be taken as a single break.
- the reduction in payments will be made up by adding on up to 12 months more at the end of your IVA.
If you have a minor problem don’t take a break for longer than you need.
Think of these automatic 9 months breaks as 9 important cards that you hold in your hand to get you through to the end of the IVA – if you waste a couple early on you won’t have them later when you may need them with a bigger problem.
Also it’s good for the IVA to end as soon as possible. When you are just a year in, it doesn’t seem important if your IVA will go on for another 4 years 6 months or 5 years – but it will later on…
And the longer the IVA goes on, the more chance of more problems occurring.
Payment breaks work well for short-term problems.
But they won’t help if the problem is general rising prices. There is no sign that your energy bills are going to return to what they were a year ago.
So if your IVA firm suggests a payment break, ask yourself if anything will be different at the end of it… If the answer is no, tell your IVA firm you need a different solution, such as reducing your payments.
Payment breaks also work better if you are making large monthly payments. If you are paying £350 a month, then you can save up to replace something essential quicker than if you are only paying £100 a month.
Cut payments by 15%
Most IVAs have the following term, giving your IVA firm the discretion to reduce your payments if your expenses have risen or income has reduced:
The supervisor will be able to reduce the contribution by up to 15% in total (relative to the original proposal or last agreed variation) without referring back to creditors, to reflect changes in income and expenditure, such change to be reported in the next annual review.
This 15% reduction isn’t much. But sometimes an extra £30 a month can make all the difference between being able to continue with your IVA or not.
Larger reductions are possible but these have to be approved. Your IVA firm will propose a “variation” to your creditors who have to vote to accept it. The problem comes when your payments would be reduced below the amount that is practical.
Cut payments by up to 50% for cost of living problems
In June 2022, new guidance was issued to IVA firms about customers who are struggling with the IVA payments because of the large rises in bills and prices.
This is MUCH more generous – no-one wants thousand sof IVAs failing because of this.
See Help with IVAs if you can’t pay because of the cost of living which looks at the help that is available and talking to your IVA firm about this.
You can normally keep 6 months worth of pay from your redundancy pay and the rest is paid into your IVA for your creditors. That six months money will let you carry on paying your IVA while you look for another job.
See What happens in an IVA if you are made redundant for more details.
What happens if you can’t get back on track
The IVA gives your IVA firm a lot of discretion about what can be done if your IVA is failing. Here is a typical term:
if the Supervisor feels it appropriate seek creditor views to do one of the following:
- vary the terms of the arrangement, or
- issue a certificate (“Certificate of Termination”) terminating the arrangement by reason of the breach; and/or
- present a petition for the individual’s bankruptcy
That doesn’t give you much of a clue about what will happen and may sound very scary. Let’s look at the three options.
Make you bankrupt
If your IVA is in trouble because you have lost your job or your income has been reduced, it is very unlikely that your IP would consider bankruptcy.
This option is intended more for “won’t pays” rather than “can’t pays”. For example, if you were made redundant then got another job and didn’t tell your IP about your redundancy money.
Vary the terms – completion on the basis of fund paid to date
The best alternative for you, if your creditors will agree, is for your IVA firm to propose a variation that your IVA is just completed even though you haven’t got to the end. Your IVA firm may use the phrase “on the basis of funds paid to date” – this means you don’t have to pay any more.
This is more likely to be agreed the closer you are to the end of your IVA. In your last year it is very likely, in your first year it would be very rare.
Other variations – lower payments, longer term etc
If you can make lower payments, these could be proposed, perhaps also extending the term of your IVA. But be careful of committing yourself to something that is just going on for too long, especially if you think your circumstances are going to get more difficult over the next few years.
It could be better for you to choose to let your IVA fail, see below, especially if you are less than halfway through your IVA.
Could a relative or your partner make an offer to settle the IVA? Read How much should I offer to settle my IVA early? if you think this might be an option.
If you have a house with equity, you may want to consider selling the house to end the IVA. If one of the reasons you have financial problems is the high cost of your mortgage or secured loan, this could be a good idea. But read Can I sell my house to end my IVA? which looks at how this should be done and the possible problems.
Terminate your IVA (“fail your IVA”) – sometimes a good option!
If there are no ways to rescue your IVA and your IVA firm doesn’t want to pay to make you bankrupt, then your IVA will fail. In 2020 more than a quarter of IVAs were failing even before Covid-19 hit.
This isn’t always a disaster.
There are many people that have been “sold” an IVA that was always going to prove difficult and some of them should have been advised to go for a Debt Relief Order or bankruptcy at the beginning, instead of an IVA.
- Read Should I switch to a DRO from an IVA? which looks at whether you should make the positive choice to do this. Your IVA firm may be talking about payment breaks and extending the term of your IVA, but if you are currently struggling and meet the DRO criteria, that could be a much better option for you.
- Bankruptcy isn’t nearly as scary as people think, most people don’t have to make any payments at all. Unless you have a house with equity you should seriously consider it.
What should you do now?
If you have an IVA and you are struggling, have a look at the terms of your IVA and see which of the points listed here are included in your agreement. Then call your IVA firm and discuss how to proceed.
If that seems too scary, talk to a good debt adviser first, so they can help you see what your options are.