Losing your job can be a big problem for your IVA unless you can get a new job quickly. Having redundancy pay can help through this period – but some of your redundancy pay may have to be paid into your IVA.
Here I’ll describe what the 2016 IVA protocol Individual Voluntary Arrangement says. Most IVAs have similar provisions for redundancy. It’s a good idea to check your own IVA paperwork and, if you’re not sure, your IVA firm will explain what will happen.
Although the redundancy terms in most IVAs are the same, people’s situations can be very different, depending on how easy it will be to find a new job and how much redundancy pay you get.
Telling your IVA firm
You don’t have to tell your IVA firm when find out your job is at risk of redundancy, but it may be a good idea. Losing your job can be very stressful and talking through what is likely to happen with your IVA will help remove some of the uncertainty for you.
You have to tell your IVA firm within 14 days of getting the notice of redundancy which gives the date your employment will end. You should inform your IVA firm even if you don’t get any redundancy pay.
Don’t think about not telling them, even if you can walk into another job straight away. That is a serious breach of your IVA. You will be asked for your P45 at your IVA annual review so it will be discovered.
Some redundancy money may have to be paid into your IVA
You have to inform your IVA firm when you get your redundancy pay.
You can keep six times what your normal monthly take-home pay is. If your redundancy pay is more than this, the extra amount has to be paid to your IVA firm within 14 days.
End your IVA early?
If you have to hand over a lot of money to your IVA firm, you may think this will end your IVA.
For example, if your IVA payments are usually £150 a month and there is 18 months to go in your IVA, you might assume that if you have to pay £4,000 from your redundancy, that that is a lot more than your remaining 18 months of payments.
But this isn’t the way IVAs work. In exchange for your creditors agreeing to write off some of your debts at the end of your IVA, they are entitled to receive “windfall” payments you may get during the IVA.
Your IVA will only end early if your redundancy payout is so large that it will mean that you have repaid all the debts in your IVA in full, without any write-off, and also the IVA fees. If you think you may be able to do this, talk to your IVA firm and they will look at the calculations.
During the next six months
As you have kept six months worth of pay, you can use this to carry on making your normal IVA payments whilst you are job-hunting.
If you get a job in this time, you have to pay the remainder of the six months redundancy money into your IVA. So if you get a job at four months, you pay the remaining two months into your IVA.
This can feel harsh if you have ex-colleagues who are putting in a new kitchen or going on holiday with some of their redundancy money, but it is the agreement you made with your creditors to get some of your debts written off.
If the job you get is at lower pay, or involves extra costs such as commuting, you need to talk to your IVA firm about whether your IVA payments can be adjusted to cover this. If there is a significant change, your creditors may have to approve the lower amount.
No job at the end of 6 months?
If you haven’t got a job at the end of six months, your IVA firm will probably give you a six- or 9-month payment break to carry on trying. This time is added onto the end of your IVA.
If you are still out of work at the end of a payment break, your IVA is at risk of failing. Ask your IVA company if your IVA can be treated as closed because you have done your best. Your creditors have to agree to this and it will depend on how much you have paid and your situation.
“I think I may be made redundant in a few months, should I start an IVA?”
Probably not! In this sort of situation it is better to wait and see what happens: if you are made redundant, how much redundancy pay you will get, how long it will take to find a new job and what the pay will be then.
If you need a debt solution now, look at a debt management plan (DMP) instead. IVAs are not very flexible and can fail, DMPs can just be changed. They are a much better temporary solution until you know what will happen to your job.
If you get a good redundancy payout and a new job easily, you will be able to use the redundancy money to settle some or all of your debts with no need for an IVA. You may want to use some of your redundancy money to train for a new skill. You may need to move to get a good job. All these things are harder when you are in an IVA.
“My partner has been made redundant”
If your partner who does not have an IVA is made redundant, the redundancy pay they get is all theirs – it does not have to be paid into your IVA.
If they get a job quickly, one option may be for them to use some of their redundancy pay to settle your IVA early. But don’t rush to do this, your debts are under control with no interest being added in your IVA. Waiting to see how they get on in their new job would be sensible. It may well be better for your partner to use any spare money to pay off their own debts, or to clear any joint debts that you have.
If they don’t get a new job quickly and didn’t get a lot of redundancy money, you may soon need to be paying more of the household bills and find it hard to manage, see Can’t afford your IVA payments for your options.