On April 17, the Insolvency Service published Coronavirus (COVID-19) Guidance for the Straightforward Consumer IVA Protocol. This guidance allows for greater flexibility to be applied to IVAs where the borrower has problems because of Coronavirus.
An IVA firm can always go back to your creditors and ask them to approve changes to your IVA. This is called “a variation” but it can be a slow process.
This new guidance gives situations where the IVA firm can give more help immediately with no need to get a variation approved. And it also looks at some other ways that Cornoavirus issues impact IVAs.
More flexibility to reduce payments and give longer payment breaks
The standard Protocol allows your IVA firm to reduce your payments by 15% and to give up to 9 months of payment breaks, see What happens when you can’t afford IVA payments for details.
The new guidance says if you have Coronavirus problems – either a reduction in income or an increase in expenses – you can reduce payments by up to 25% and to take payment holidays for up to three months without a variation being required.
This extra payment break is in addition to the standard IVA provisions. So if you have already used up 9 months of payment breaks you can still get this extra three months.
Payment breaks are just added onto the end of your IVA, so you will be paying the same amount in the end.
I would expect IVA firms to be sympathetic to the broad variety of Coronavirus problems that can occur. It may not be you who has lost their job, is on furlough or has to self-isolate, it could be your partner or someone else in your household that normally covers some of the bills, so your expenses have risen.
Flexibility around redundancy pay
The standard Protocol says if you get redundancy pay you can keep 6 months worth of normal pay but have to pay the rest into your IVA. This lets you carry on making the normal IVA payments for 6 months. See What happens in an IVA if I am made redundant? for details, including what happens if the amount is large or if you get a job within the 6 months.
The new guidance says:
The supervisor has discretion, in relation to whether any redundancy payments in excess of six months net take home pay are required to be brought into the arrangement as set out in clause 10.6 during the duration of the pandemic. The [borrower] should be explicitly told that they may have to include an amount that has been paid by way of redundancy into the arrangement in future, if the supervisor decides to use that discretion.
That is a bit vague. I think it is there in recognition of the fact it may take some people more than 6 months to find a new job. If you have lost your job and think it will take you more than 6 months, ask your IVA firm to be allowed to keep all your redundancy pay for now.
You don’t have to pay in overtime if you are a key worker
This is the clause in the 2016 standard Protocol about overtime:
10.4 Where the individual is employed, the consumer must report any overtime, bonus, commission or similar to the supervisor if not included in the original surplus calculation, where the sum exceeds 10% of the consumer’s normal take home pay. Disclosure to the supervisor will be made within 14 days of receipt and 50% of the amount (over and above the 10%) shall be paid to the supervisor within 14 days of the disclosure.
The new guidance says:
Paragraph 10.4 of the protocol should not apply to critical workers’ overtime during the COVID-19 pandemic. A critical worker is defined by the list published by the Government and determined by the employer. Additional proof of critical worker status may be required by the supervisor.
This very good news for key workers. Many of them are having to work extra overtime and many are in jobs where their own health may be at risk, so I think it’s fair that they should be able to keep all the overtime pay they will be getting.
No equity release
The new guidance says that no attempt should be made to release equity during the pandemic unless the debtor wants this. Instead the supervisor has discretion to extend the IVA for 12 months.
This applies to all debtors, even if you are not affected by Coronavirus, because getting good house valuations is currently impossible and the mortgage market has seized up.
I think you should not be asked to extend your IVA unless it is clear that you have more than the minimum amount of equity. See How does Equity release work in an IVA for details. It’s hard to value property at the moment, but I suggest you should object if you are told to extend your IVA when you don’t think your house is worth enough.
I think you should also object to an extension if Coronavirus has badly affected your household finances.
Your IVA firm can choose to put forward a variation to your creditors saying that your IVA should be treated as closed at the end of the term, with no extension. This is what you should ask for if you don’t think an extra year is suitable.
So ask for help!
These are not normal times. Your IVA firm and your creditors will not want your IVA to fail because of a temporary Coronavirus problem. Whatever your problem, contact your IVA firm and talk to them about what help they can give.