StepChange IVAs – a mass variation to help with cost of living problems

UPDATE – Unfortunately this mass variation was not approved. But any StepChange clients who are having difficulty with their IVA payments should contact StepChange, who can look at what help can be provided for you. It is still possible to get individual IVAs changed, it was just the attempt to get all IVAs changed that was not agreed.

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Many people with IVAs are finding it difficult to afford the monthly payments in 2022 because of inflation.

StepChange is now proposing a “mass variation” that should help many StepChange IVA clients.  Peter Wordsworth, Head of Insolvency Services at StepChange, says:

At Stepchange Voluntary Arrangements we have been keen to do whatever we can to help our clients through this particularly difficult period. That is why we have taken the decision to issue our first ever mass variation for all our existing cases.

The proposed StepChange mass variation

A normal IVA allows the IVA firm to reduce payments by 15% without asking the creditors to agree.

The proposed mass variation will give StepChange a lot more flexibility to reduce payments without asking for creditor approval. The variation says:

The Supervisor will be allowed to review the debtor’s income and expenditure to take account of rising costs, including but not limited to gas, electricity and fuel. The Supervisor will be able to reduce the debtor’s agreed surplus by up to 50% or down to a minimum of £50.00 per month, whichever is higher.

StepChange will also be allowed to extend an IVA term by up to three months to cover payments that have been missed because of cost of living problems.

An example. If you are currently paying £150 a month, before StepChange could only reduce that £122.50 a month without organising a creditor vote. If this variation is passed, StepChange will be able to reduce it to £75 and your creditors won’t have to vote on it.

Only creditors have to vote on this

This mass variation has to be approved by creditors on 20 December 2022.

StepChange has written to the three main “creditor representatives” asking for their support to approve this variation. Creditor representatives vote on IVAs on behalf of the majority of creditors.

StepChange customers don’t have to vote to approve this because all the changes proposed will help customers. There is no reason why any customer would want to reject these changes.

Do you need a reduction in your StepChange IVA payment?

This variation doesn’t change your IVA immediately. It just gives StepChange the power to make changes if you are affected by rising prices and bills.

So if you are finding it hard or impossible to manage the IVA payments at the moment, get in touch with StepChange and ask if your payments can be reduced. Do this now – there is no need to wait until the variation has been approved to do this.

Even if you have only a year to go and want to get through to the end to prevent your IVA failing, it is still worth asking for a reduction to make the next year easier.  Don’t try to borrow from family or get behind with bills to pay the IVA when this help is available.

What if you need a larger reduction?

For some people, a 50% reduction may not be enough.

StepChange can propose a larger reduction. This would have to be voted on by your creditors in the same way it would have been if the mass variation hadn’t happened.

If you will be able to afford less than £50 or can’t pay anything at all, talk to StepChange about whether your IVA can be completed now without you having to pay any more. This is called “completed on the basis of the funds paid to date“.

Creditors will vote on whether to approve this if StepChange puts it forward. You may think that sounds unlikely. But your creditors won’t benefit if your IVA fails and you then go through a Debt Relief Order or are simply unable to pay your creditors anything. So it may be best to just complete your IVA with your debts being written off, not fail it.

Better than the Insolvency Service guidance

In the summer, the Insolvency Service told all IVA firms in Guidance to support the IVA protocol that they should consider allowing people to reduce their IVA payments. What was proposed sounded ok but was complicated. The comments below my article Help with IVAs if you can’t pay because of the cost of living show has this often hasn’t been easy in practice.

It relied on “deemed consent” – the reductions have to be proposed to creditors, but they are expected to agree them. Stepchange’s approach of asking for the agreement in advance for all its clients is much more clear-cut.

The guidance said that any extension to the IVA term should not be for more than a year, and it should not extend the IVA to more than 7 years. For a lot of people desperate for their IVA to finish, that will have sounded a lot. StepChange’s proposal of “up to 3 months” seems much more reasonable and in the spirit of really helping people in difficulty.

The Insolvency Service guidance also allowed the IVA firms to charge fees for variations – StepChange is not charging any fees for the mass variation.

More flexibility is needed for IVAs in the future

Peter Wordsworth says:

Ideally, we’d like to see an equivalent sector-wide approach delivered through the protocol, to make IVAs more resilient and flexible when client circumstances change. 

I completely agree. IVAs need to be reformed so they are simpler and more flexible.

Five or six years is a very long time – a lot can change in people’s lives. Covid and the current cost of living crisis have affected a very large number of people, but even before 2020, it made little sense for an IVA to fail because of a major event in their life such as having a baby, health problems or being unable to find well-paid work after redundancy.