Many people in an IVA are currently struggling because of the large rises in bills and prices in 2022.
The Insolvency Service has now issued Guidance to support the IVA protocol. (That is confusingly laid out – look for the section headed 60) Guidance to support the IVA protocol for existing protocol compliant IVAs: 26 June 2022.)
This sets out what extra help IVA firms should provide because of cost of living increases. The IVA Protocol Standing Committee expects large numbers of IVAs to get reduced payments.
This extra help is there for people now if they ask for it – you do not have to wait until your next annual review.
Contents
New guidance – Reducing payments & a restriction on extensions
The Guidance says:
It has been agreed that reductions will generally be accepted by creditors of up to 50% of current contributions, or £75, whichever is higher.
This is a big improvement on the standard IVA terms and conditions, giving a lot more flexibility.
But there is one important exception – your IVA firm will only propose a reduction where they consider the IVA will be “sustainable”, see below for what will happen in this case.
When IVA payments are reduced, it’s common for the IVA firm to want to extend the IVA to make up for this. The Guidance says an extension should not be for more than a year, and it should not extend the IVA to more than 7 years.
This is good news, as some IVA firms have recently been suggesting a two year extension in some cases.
When the reduction being proposed by your IVA firm is within these guidelines, this should just be accepted by your creditors. You don’t need to worry about this.
Some people will need a larger reduction
How much your payment needs to be cut depends on your situation. For example someone with a long car commute will be paying a lot more in petrol.
If your £280 IVA payment needs to drop to £110, that is more than the 50% drop in the new guidelines. Here your IVA firm may suggest that you need to extend the IVA by more than a year. But I think you should object if the extension would make your IVA over 7 years long – that is unreasonable.
With these larger reductions, your creditors will be asked to approve the variation to your IVA by voting on it. This is a common procedure and your IVA firm will explain to your creditors why it is proposing this variation.
Unsustainable IVAs
Will your IVA fail?
The Guidance says that the Committee would not consider payments of less than £50 a month to be sustainable. And your IVA firm may consider a payment of only £75 to not be sustainable.
Here your IVA may fail, leaving you back with your debts and very little or no spare income with which to pay them.
But the new Guidance says that the IVA firm should consider whether your IVA should not fail but should be settled “on the basis of funds paid to date“. This means that, if your creditors agree, your IVA will simply complete, without you having to make any more payments. Which would obviously be the best option for you…
Will your IVA firm agree to complete your IVA on the basic of funds paid to date?
The Guidance lists a lot of factors to be considered in deciding whether a settlement on the basis of funds paid to date should be proposed. You should read the list. But that may not give you any feel for whether they apply to you or not.
The following are my thoughts on when an IVA should be treated as settled, not failed. They assume that you have £75 or less to pay a month:
- if you would currently qualify for a Debt Relief Order, then your IVA should be settled now
There is no point in making your IVA fail and you have to apply for a DRO – it will not generate another penny for your creditors.
If you are renting and owe less than £30,000 then you need to check the DRO criteria now and talk to National Debtline on 0808 808 4000 about whether you qualify. You may have been told at the start of your IVA that you aren’t eligible – still check now as the DRO criteria have changed, your situation has got worse, and some people were given incorrect information about DROs at the start. - if you have no assets that would be realised in bankruptcy (eg a house with equity, car worth over £2000), then your IVA should be settled now
Same as (1), there is no point in making you apply for bankruptcy after your IVA fails. - if your only asset is a car that is worth less than £8000, then your IVA should be settled now
A car that is worth say £5000 would normally be sold in bankruptcy and you would be given a small amount to buy a cheaper car. But your creditors would not get any benefit from this as the Insolvency Service takes the first £8000 raised to cover its own costs. - if you have significant assets, the closer you are to the end of the IVA, the less reasonable it is to fail it
If you have been paying your IVA for 4 years, you have done your best over a long period. It isn’t your fault you can no longer continue. The fact you may have had equity to release isn’t relevant as that simply isn’t going to be possible. - if your situation will clearly improve soon, then it’s unlikely your IVA will be settled
I mean real improvements, not hoping that prices fall.
What to do if you need a reduction
Talk to your IVA firm
The new Guidance is provided for when someone asks for a review of their payments because of prices increases. So you have to ask for this review.
Unless your annual review is only a few weeks away, don’t wait for this and try to struggle through. And don’t borrow money to try to keep yourself going.
It’s a good idea to gather your evidence together before talking to your IVA firm. Bank statements will help, but you may have had a recent letter or email about your rent or mortgage going up that isn’t yet on those statements.
For most people the largest changes are:
- energy bills;
- petrol;
- groceries.
But you may also have had a lot of smaller changes such as council tax, water, mobile contacts, broadband contracts etc. Make a full list of these. This is your chance to get your problem resolved, you don’t want to miss off a few smaller things that together add up to £25 a month.
When you are getting a review done now, in summer 2022, you also want the fact that your energy bills are very likely to increase by roughly 50% again in October to be taken into consideration. You don’t need to wait for that to happen – this is clear enough that your IVA firm should include that raise as well.
Do you have any better options?
A payment break is often proposed when someone tells their IVA firm they are in difficulty. But there is no sign that bills and prices are going to start dropping anytime soon. So that is unlikely to solve the problem.
I know some people have been asking their families for help, either to pay the monthly amounts or to settle the IVA early. Here it makes sense to see how large a reduction you can get from your IVA firm first. If you can get lower IVA payments, a smaller settlement offer from your family could be accepted.
What if your IVA firm will not agree?
First, don’t assume that you will have problems! You may be very worried and stressed. And your experience of annual reviews may not be positive. But just get a list of your expense increases and contact them asap.
But if problems arise, here are some suggestions:
- If your IVA firm says you can afford to pay more than you think, your first step should be to talk to a debt adviser and get them to help you draw up a budget and discuss any points your IVA firm made. Phone National Debtline on 0808 808 4000. Then, armed with this, go back to your IVA firm. The longer it is until the end iof your IVA, the more important it is that you get a reduction to a figure you feel you can live with.
- If your IVA firm wants to extend your IVA by more than a year, or to over 7 years, remind them of the Guidance and put in a complaint.
- If your IVA firm says they can only reduce your payments by 50%, you can ask for a larger reduction. This will have to be put to your creditors to vote on, but there is no reason why this shouldn’t happen.
- If your IVA firm says your IVA is unsustainable and they will not propose that it is completed on the basis of funds paid to date, ask them to explain why not. Tell them if a debt advisor has said that you will qualify for a DRO. Explain why you think they should agree to this.
You can make a formal complaint in writing if you think they are being unreasonable.
Or insist on a proposal to complete your IVA being put to your creditors – your IVA firm will tell the creditors why it doesn’t think this should be approved but you can ask for your reasons to also be put forward.
What happens if your IVA does fail?
In the end, if the worst happens and your IVA fails, then you are left back with your debts. See What can you do after an IVA fails which looks at the alternatives.
In addition to the five options there, if you think your IVA firm has been unreasonable in failing your IVA and you have no reasonable prospect of making any debt repayments, you could also ask your creditors to write off your debts.
More than a third of IVAs fail
FCA tries to reduce IVA mis-selling
Could a Debt Relief Order help you?
Martyn says
Thankyou so much for this Sarah!
This would directly affect me, as my IVA has been difficult to stump up despite me persevering to stay with it.
Sara (Debt Camel) says
Let me know how you get on!
jb says
Is there any similar information for people on a debt management plan?
Sara (Debt Camel) says
No because there is no need for DMPs – IVAs are legal contracts that have strict rules about when they could be changed – those need to be relaxed.
DMPs are informal arrangements, they can be varied at any time by any amount. So no Guidance is needed.
All the DMP firms should listen to your problems about your expenses going up and work to get reduced payments in place to help you manage. If your DMP is no longer viable, they will talk through if you have any possible insolvency options.
See https://debtcamel.co.uk/dmp-payment-too-high/. Talk to your DMP firm and you have problems getting them to lower your payments, leave a comment there.
Joanne Patterson says
Hi Sara,
I’ve been waiting for this review.
I’m 4.5 years into an IVA and have taken the 9 payment breaks over that time so it’s a most added another year on. Xxxc
IVA start date march 2017
Est completion now December 2023
I’ve had a review in March and they suggested I should try and maintain the £290 month (lowest if can go without consulting) even though my bills have gone up ! I did agree because they said my creditors would ask to add another 12 months !
However I also own my own home with equity so I also have to do that come May 2023 and they will likely add another 12 months taking me to 2024!
If I contact them to half my payments would they say that’s an acceptable amount to keep paying and not agree to fail based on what I’ve paid already ?
Thank you as always Joanne
Sara (Debt Camel) says
how large are your payments at the moment? £290 and they didnt drop in March?
How much do you think you can afford? taking into account energy bills going up another 50% in October?
Joanne Patterson says
Yeah they are £290 and didnt drop at all in March – they said to try and avoid having to go to the creditors as its likely to add another 12 months – I told them then I would not be happy with that at all so said we would try and manage even though after the review he said surplus was £220 (I am with Step Change).
My review included the increase in energy prices but my mortgage has gone up again as I am on a variable, food increasing all the time and energy due to rise again, car insurance gone up since then by £5 month, school meals going up in Septemeber 10p meal just for starters.
Sara (Debt Camel) says
ok then if all you can afford is 220, that is what your payment should now be reduced to.
However your energy bills would have gone up in April? And will go up again in October? So it may well be that your payments now need to drop more. This should still be ok under the new guidance down to £145.
You can argue that you would be happy for an extra 3 months to be added, but not 12 months because another 12 months will be added on for the equity release.
I don’t see how you can hope to carry on paying much more than you can afford for what is more than 18 months, so I think you have to try to get this resolved.
Joanne Patterson says
I’m going to ring them this week they are always really helpful I find unless your asking them tricky questions about creditors , I don’t think they like to approach them for whatever reason !
Thank you again Sara your always so helpful.
Thomas says
Hi Sara. If a possible reduction in Iva payments was within the fifty per cent allowed would any extension to the term be enforced? Thanks.
Sara (Debt Camel) says
Yes, the suggestion is if the reduction is up to 50% an extension should not be longer than a year or extend to more than 7 years.
Thomas says
Thanks Sara. I really don’t want my Iva to extend if I can help it. I’m going to try and struggle on until my annual review in October.
Sara (Debt Camel) says
how long does your IVA have to go? are you buying or renting?
Thomas says
Hi Sara. Will be nearly 18 months to go plus another 12 if I can’t release equity. I have a house with equity but I’m 67 years old.
Sara (Debt Camel) says
There is no chance of you being able to release equity at your age.
I suggest that 30 months of paying more than you can afford is not possible. And that paying an affordable amount for 42 months may be better.
Thomas says
Hi Sara. Thanks for the advice. Will need to give it some serious thought. I just thought that if my payments were reduced at the annual review then it wouldn’t be subject to an extension in the term.
Carol Ann says
Hi Sara, my Iva finishes in February 2023. This will be seven years paying as I could not release equity.
I am really struggling to pay £227 every month and have even had to borrow money from family to just get through. Do you think I would be eligible to have mine reduced even though I do not have that long left?
Thanks
Carol
Sara (Debt Camel) says
Yes. Ask them now!
Carol ann says
Hi Sara, thanks for the reply. Looking into it more I’m thinking Of asking for my IVA to be completed early. They are not very forthcoming but it’s sort a try.
Thank you for your advice.
Sara (Debt Camel) says
i think you should start off by setting out in details how much your expenses have gone up.
Paula says
Hi Sara,
can we submit a complaint to our IVA Supervisor? We reported to him that we had problems with payments of £ 250, we had a 3-month break in repayment because we already have overdue bills for £ 1000. We have a repayment car and a home mortgage. We are in IVA for 1.5 years. It’s a drama. We are approaching remorgage, and he literally blew us, writing that he did not decide about it. We asked for IVA reduction or termination. Husband’s salary was reduced by £ 800 a month. What can we do. We are looking for help.
Sara (Debt Camel) says
We reported to him that we had problems with payments of £ 250, we had a 3-month break in repayment because we already have overdue bills for £ 1000.
How long ago was this?
We are in IVA for 1.5 years. It’s a drama. We are approaching remorgage,
Do you mean your IVA has 1.5 years to run?
Paula says
A 3-month break in the IVA covers July, August and September. About a week ago we were fighting with our IVA Supervisor. We have the impression that we are banging our head against the wall. Nothing reaches him. We have a 3.5-year-old son. Our IVA was started on 18/01/2020. He did not even try to report to our creditors about our problems. Child Benefit calculated his own way. I am on the verge of collapse.
Sara (Debt Camel) says
Who is the firm and are you actually talking to the Insolvency Practitioner or just Customer Services?
Paula says
Yes, we talked, and we have exactly the confirmation in the e-mails exchanged with our IP. I do not want to give the name of the company here, because I am simply afraid. My husband cannot take a vacation, we cannot even take our son anywhere, we simply do not have money for it. from the very beginning, we were badly guided. Our calculations show that we are in the red every month. For every e-mail about the change of the IVA amount or something, “but you signed” We do not know what to do anymore.
Sara (Debt Camel) says
So now it is essential to set out all your problems. in writing. Making a complaint isn’t enough,. you need to be clear about what you want to happen and why.
If the problems are only caused by your husband’s drop in wages, then the new Guidance is not relevant, but presumably you are also finding that your energy bills, food bills, petrol etc have also gone up? This is what you now need to set out in detail. You need to be saying “we would not be able to pay our £250 a month IVA even if my husband’s salary had not been cut because the following bills have gone up …. list them all, however small. HAs your mortgage gone up. if not, when does your fix end?
If you are on the standard energy variable rate at the moment, you need to point out that that is now expected to go up another 63% in October.
When does your car finance end and at that point will you own the car?
What are the bills that you are overdue on at the moment and will the three month break mean you can catch up or just not go any more into the red?
How large were the debts that went into your IVA? How many months have you paid for so far?
Paula says
Two weeks ago, we sent to IP our expense statement, what and how much. He changed everything, because as he stated “we can’t spend more because there are limits” From January our new mortgage will change from £ 469 to over £ 630. Husband sent an e-mail, he wrote back that he did not decided about it and could not advise on this.We were looking for information on this subject and we know that without his consent,we cannot accept the new offer without consulting the IP,especially the new mortgage offer is higher than the current one we are paying now.Car finance ends at the end of 2024
A 3-month break will not help us,It will be the same or worse.Every 10 of each month we have to pay a mortgage of £469 and a car,that is repaid in the amount of £87 a week,and we lave about £57 a week for everything.We pay a mortgage for two installments per month l,because we cannot afford the repayment when it should be paid once,because we are left without money for the entire week.Our debts were £60000.
75% has been write off if I count correctly l,so we pay £15000 from January 2020.
Sara (Debt Camel) says
if you do not take out this new mortgage, what will happen to your mortgage rate – do you know what the SVR (Standard Variable Rate) is for your current lender and how much higher that is than your current fix?
Kristina says
Hi Kristina,
I have not been able to find out anything definitive on your case but wondered if you would like to put the question on this forum:
https://debtcamel.co.uk/help-ivas-cost-of-living/
I would say: ‘I have been unable to make payments against my IVA (started in 2018) for sometime as my financial circumstances have changed and my only income is benefits. I have been advised by Citizens Advice that I am eligible to apply for a DRO and have approached my IVA provider to try and terminate the IVA. They have written to creditors but it has been 2 months now and they say they have to wait to hear back Meanwhile I have other debts and am being chased for payments which I cannot make. Is there anyway I can speed up the IVA company to terminate the IVA?’
Regards,
Rosemary
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Sara (Debt Camel) says
it’s nice of Citizens Advice to point you here.
What exactly has your IVA firm asked your creditors to do – it doesn’t need your creditors permission to terminate your IVA, but it does if it has asked them to complete the IVA on the basis of the funds paid to date.
Have you stopped making any payments to the IVA? Do you mind saying how large the debts are that are outside your IVA? Who are these debts owed to and have you told them you cannot make payments?
Kristina says
The iva has asked for a funds to date I did call them but they couldn’t give me an answer.yes I stopped paying into my iva as my circumstances changed. I owe to a vets bill and also hmrc .it totals £3000 I have notified them I cannot afford to pay .
Sara (Debt Camel) says
so will you be applying for a DRO even if your IVA is completed, not failed?
How many IVA payments have you missed so far?
Kristina says
Yes I will apply for a dro..I have not made a payment since July last year.
Sara (Debt Camel) says
Then I suggest you contact your IP and say you want the IVA failed now as you have missed more than 3 payments and you want to get a DRO set up to cover other debts as well.
You can also ask Citizens Advice to get on with getting the DRO application ready so the button can be pushed when the IVA is failed or completed. Do you have the £90 for the DRO fee saved up?
Kristina says
Hi I have informed my creditors that I can’t afford to make any payments due to change in circumstances. The iva company are doing a funds to date. But they cannot give me any more information when I called them my debts are totaling £12.500
Kristina says
Thank you I will contact them right away..no I don’t have the £90 to cover the dro
Sara (Debt Camel) says
Then this would be a good point to start saving that up. And do talk to Citizens Advice – it can often take a couple of months to get a DRO set up.
Joanne says
Hi Sara,
I have penned a letter to my IP Practicioner, I have tried to cover all of your points – I have had to post over a couple of reply’s to cover it all!
I am writing to you as a worried single mum about my current situation and my IVA.
Back in 2017 I separated with the children’s father and he left me with overbearing debts that I had no way of paying and no offer of support for our children. I was advised to speak to StepChange after almost falling fowl to a rogue IVA company and finally got the support I needed. My IVA started in March 2018 and has been successful for almost 4.5 years. I have taken payment breaks when needed to cover car and boiler costs.
Even through the pandemic whilst others struggled on and I am proud of myself for that but nobody could predict where we find ourselves now and moving forward.
In my last review I did advise that my outgoing costs were going up and the additional income was coming down, I was advised to still show the additional income at a rate that would allow me to only reduce my payments to the 15% threshold of £290, I was advised that going lower than this would mean my creditors would have to agree to the change and they would likely ask for an extension. I did say that I thought this would be unfair as the cost of living is something outside of my control but I also did not want to keep adding time on its already a huge strain on my financially and mentally.
Joanne says
part 2:
I am now at a point where the additional income has dropped even further due the fact customers are spending less as the cost of living affects us all but my daily costs are still rising and my situation is worsening.
My IVA was originally due to complete in March 2023 this will extend to Dec 2023 to cover the agreed payment breaks. If (most likely) because there is a “bankruptcy / insolvency” marker on my mortgage I cannot re-mortgage then this will be extended again by another 12 months taking me to almost 7 years of the IVA. Following the guidance recently issued about IVA’s and the cost of living crisis the guidance is not to extend beyond the 7 years. I would not qualify for a DRO or DMP.
I do not want to FAIL my IVA I am almost 4.5 years in and I have done my absolute best over a long period of time often struggling and it isn’t my fault that I now find myself in this situation. My priority has always been to complete this IVA and move on with my life and be able to keep my children in their family home, the fact I have equity isn’t relevant as I can’t re-mortgage anyway and to force me into bankruptcy would be unfair given I have maintained my IVA for such a long period of time.
Joanne says
part 3
Given all of the above, I would like to ask for your help to get my payments below the 50% to allow me to do this successfully or complete my IVA based on funds paid to date, I understand that creditors will need to vote to accept this change. Given that my income was inflated in my last review to keep my payments in line with the 15% threshold I am already struggling.
A payment break wouldn’t be suitable as there is no sign that bills and prices are going to drop anytime soon so will not solve the problem.
My circumstances are not likely to improve based on the fact that I am salaried and my additional income has continued to decline whilst my living costs are continuing to rise. I am extremely worried about the cost of energy prices in October which they are now saying these will be higher than originally predicted even at the 40% that means at best my direct debit will increase by £87.50 month and will rise again in January.
I have attached a budget planner which was used in for my last review March 2022 and summarised the increases I have already faced and will face going forward.
Sorry its been a long letter Sara :)
Sara (Debt Camel) says
I think from what you have said that looks like a good letter.
I suggest changing this:
I would like to ask for your help to get my payments below the 50%
to be specific about what number you need the payments to be reduced to in order to be able to cope with the expected October energy price rise.
Simon says
Hello, my parents are currently 3 years into a 5 year IVA. They have missed the last 6 months payments of £320 and are in danger of breaking the IVA.
They have had letters telling them they will need to pay the last 6 months off within 28 days or they will look to sell the house which they currently own. Is this correct?
The debt they owed in full was around 22k and have been told the iva company will look to do a quick sale to get the money paid off.
I was in an IVA myself years ago and broke it off as I didn’t want to be in it any more but I owned nothing and I just ended up paying off the debt to the companies myself.
Surely that’s what will happen? The debt just goes back to the creditors right?
Sara (Debt Camel) says
why have they been unable to pay – the rising cost of living or something else?
Simon says
Mam was already retired, dad rented due to ill health but they are 68 and 71 respectively.
They have always been able to pay the bill through pensions but have ha to help their other son out with many of his bills.
They are able to afford the normal monthly fee going forward and the IVA will be up in 2.5 years but they have been told if they don’t pay the 2.7k to get their payments up to date then the house will be sold.
Does that dound right to you?
Sara (Debt Camel) says
They can’t just not pay their IVA to help their son out.
It seems to me to be unlikely that their bills havent gone up a lot since the start of the year. Could you help them make a list of this? Because they are entitled to help with that, so it may be that they need to argue that case and accept their IVA will be extended for a year.
Simon says
That’s pretty much what they have done, been paying their other sons debt off and not there own…..crazy I know!
So could they speak to the IVA company again and maybe look at getting the payments down and then of course have it extend for another year?
But is what they said right about them(the IVA company) being able to sell the house to pay the debt off? Is that how it would work?
Sara (Debt Camel) says
An Insolvency Practioner running an IVA has wide powers if the debtor has breached it – and they are more likely to use them if the breach was deliberate. They need to urgently try to reach an acceptable agreement with their IVA firm.