A reader asked whether an IVA was suitable for her. As part of that she said:
I am hoping to move in with a new partner later this year. I would have to pay more rent and bills but I would have lower petrol costs as he lives very close to my work.
It is usually a bad idea to set up an IVA when you expect your living costs to change a lot in the near future and it is not certain what they will be. Moving house is a good example of this.
IVAs are not flexible arrangements
When an IVA is set up, a monthly payment proposed is by your IVA firm. This should be affordable for you and will be approved by your creditors when they vote on your IVA.
If your expenses go up
In most IVAs, your IVA firm can decide to reduce your monthly payment by 15% if your expenses have gone up or your income has fallen.
If that isn’t enough of a reduction, because your new rent and bills have gone up a lot, your creditors can be asked if they will accept a less. But they may refuse if your IVA payments are already low compared to your debts. Or sometimes people are told their IVA will need to be extended for another year.
If you wait and then set up an IVA when all your new costs are known, this will be a lot less stressful. Lower IVA payments can be set right from the start and there will be no risk of your IVA failing because of the move.
If your living costs drop
Many people moving in with a new partner may find that their expenses fall. If you have an IVA that has already started , you would then be expected to increase your IVA payments when your IVA annual review happens.
When you take out an IVA you expect to get some of your debts written off at the end, but some people’s IVA payments increase a lot and they end up paying their debts back in full, plus IVA fees. That’s not a disaster – you will still gained by not having interest added – but it does mean that you may feel you could have managed without an IVA, just getting a debt management plan where interest is normally frozen.
Tenancy or mortgage issues
Moving house often means either a new tenancy or a new mortgage. (These problems may not matter for the reader asking this question as it sounds as though she is just moving in with her partner, not getting her name on a new tenancy.)
If you are renting, having an IVA on your credit record makes it much harder to get a private tenancy – even worse than having a CCJ. So it would be better to move first and avoid this problem if possible.
It is even harder if you have a mortgage. You will not be able to get a new mortgage when you have an IVA on your credit record. And even if your partner could, if you sell a house with equity when you are in an IVA the IVA firm will expect all of your share of the equity to be paid towards your debts. So if you have a house with a mortgage and you have to move during your IVA, it is often better to keep your current house and rent it out, and rent yourself in the new location.
Of course, sometimes people have to move during their IVAs, for example if your job moves. But in general it’s good to minimise these sort of problems by delaying starting an IVA when you expect to move in the near future.
But what if your debt problems are urgent?
If you can’t make your minimum payments or you are being pressured by bailiffs you may feel you need a solution to sort out your debts immediately. But talk to a good debt adviser, not an IVA firm, about your alternative options. Don’t rush into an IVA that may not be right for you.
If you expect to need to move house in the next 6-12 months, then a debt management plan (DMP) could be a good temporary solution.
DMPs are informal and flexible. After your move you can then make the best choice:
- if your situation has improved, a DMP may be able to clear your debts in a reasonable time and avoid having an IVA on your credit record ;
- if an IVA is right for you after the move, you can stop the DMP easily and get an IVA;
- if your situation is worse and you can then afford to pay little or nothing to your debts, you can look at other options such as bankruptcy or a Debt Relief Order.