The team behind IVAorg CIC have over 75 years combined experience in helping thousands of people to successfully complete their IVAs.
So, in order to help you navigate your way to debt freedom, we’ve come together, pooled our extensive knowledge and experience and created the ‘The Essential Guide to IVAs’, offering useful tips and advice designed to help you successfully complete your IVA journey.
We hope you’ll find it a useful point of reference along the way.
Maintain Good Communications with the IVA.org team
Without doubt, this is top of the list of things you can do to give your IVA the best chance of success.
We are here to help you navigate your IVA and we can only do that if you keep us informed should you start experiencing difficulties with your IVA.
Just like you, we have a vested interest in your IVA completing successfully, so it’s important that we all work together.
That’s why we want to encourage you to keep us updated with any changes to your personal circumstances, particularly if you start to experience issues with maintaining your IVA payments.
Top tip: If you’re struggling to maintain your IVA payments due to a change in circumstances, please let us know.
We have a range of different measures available to us to help you should the need arise, but we will only be able to provide help if you keep us informed along the way.
We also have a specialist supervisory team in place to look after you and your IVA, so if you need to have a chat with them you simply need to call 0161 850 4909 and they will do all they can to assist you.
Maintain a Positive Mental Attitude
One of the most important factors in determining whether your IVA will complete successfully will be your mental approach towards the IVA.
If you approach the IVA as if it were a 5 year jail term then, undoubtedly, you’re going to struggle; whereas if you approach the IVA like it were a new beginning, without the burden of your debt, then you’ll stand a much better chance of making it through to the end, unscathed.
Counting off the days to the end of your IVA will, undoubtedly, be a depressingly slow business. Yet when you think about it, an IVA has a similar term to that of a typical car loan, which most people tend to endure without a problem.
So why does entering an IVA feel so different? Well, it’s all in the mental approach and approaching the IVA with a positive mental attitude will help you enormously.
Top tip: If you’re struggling at some point in the IVA, try to remember the IVA benefits:
- Your property is safe with an IVA.
- There is no interest or charges added to your debts during the IVA.
- Your creditors can’t take legal action against you.
- Creditors can’t hassle you for an increase in your repayments.
- You will be debt free when your IVA completes successfully.
- You will be debt free even if you can’t repay all your original debt.
These are all great reasons to maintain a positive mental attitude and should be recalled whenever you’re struggling.
Living Within an IVA Budget
One of the biggest adjustments you’ll have to make will be related to your new IVA budget.
As you know, your IVA budget has been calculated to ensure you have enough money to cover all your essential monthly expenditure and it does this by making allocations to all the different areas of your spending. Your particular needs in each area of your budget should have been assessed and provided for.
That’s fine in theory but, as we all know, costs fluctuate on a monthly basis, with some months being relatively cheap and others being particularly expensive. These swings in a fixed budget can be problematic, particularly since you no longer have access to lines of credit.
The truth is you’ll need to manage your budget carefully; otherwise you’ll hit problems.
Top tip: Make sure you reserve the different budget allocations for their intended purpose, so the money is there when you need it.
Using your car maintenance allowance to fund something else will cause you problems when you need to do essential works on your car. So be strict with yourself and, wherever possible, live within the limits of each allowance.
Open a deposit account and transfer into it any excess funds you have at the end of each month. Then the allocations will be waiting in a safe place ready for when you need them.
Economise Wherever Possible.
One benefit of living within an agreed budget will come when you manage to make savings, because it’ll be you benefiting from any savings made through careful budgeting. For example, if your monthly food allowance has been set at £220, and you manage one month to spend just £180 on food, you’re free to reallocate the £40 you’ve saved toward whatever you see fit.
Budgeting and economising can be taken to a whole new level if you’re prepared to start shopping around. Using discount vouchers and store loyalty cards whenever and wherever possible will make your money go further.
Top tip: “Watch the pennies and the pounds will take care of themselves” is as true today as it’s ever been.
Remember, every saving counts, so take every opportunity to economise, especially by searching out special offers when buying your everyday items.
IVA Annual Review
As part of our responsibilities as your IVA supervisor, we will undertake an annual review of your personal circumstances each year on, or near, each anniversary of the start of your IVA. The annual review is undertaken to determine whether your IVA payments should stay the same as the past 12 months or whether they should be increased.
In order to complete each review successfully you will be expected to provide proof of your current income, along with your latest 3 months bank statements when requested. Proof of your income could be by provision of your most recent P60 or a series of recent wage-slips.
If the gap between your household income and your household expenditure remains the same, then your IVA payments will stay the same but if the gap between the two widens, you should expect your IVA payments to rise accordingly.
Top tip: Keep a copy of your budget allowances as we agreed each year – your first being found in your IVA proposal.
You’ll want to refer to these allowance figures at each annual review and helping us understand your budget requirements will be much more difficult without them.
Remember: Your task is to try to demonstrate, legitimately, the gap between your income and your expenditure hasn’t changed, in order that your IVA payment can stay the same. So, if your income increases, make sure you account for all the actual increases to your expenditure that you’ve experienced too, including increases to your household utility bills and petrol costs, which are often overlooked. Use your previously agreed annual budget allowances as a guide and maintain or increase these figures according to your current needs. Don’t forget to include new allowance requirements that reflect changes in your circumstances, as we may well be unaware of any changes until you inform us.
But also remember, if you can afford to pay more into your IVA you will be expected to do so.
Changes to your IVA budget
The IVA budget is determined by two separate elements, your household income and your household expenditure and it is the difference between these two figures that determines what you pay into your IVA.
When you experience a change in either of these two figures you can expect it to have an impact on your IVA payment.
Changes to your Income
It’s fair to say that it’s unlikely your income will stay exactly the same for the full duration of your IVA and, as you know, fluctuations in your income might have an effect on your IVA payments. Therefore, you should make yourself familiar with how any changes might affect you, in order to help keep your IVA on track.
Bonuses, Overtime and Commissions: If you’re an employee and receive some extra income you’ll have to notify us. All extra income above 10% of your normal take home pay will become subject to a 50-50 split with your creditors.
You’ll also be expected to notify us within 14 days of receiving the funds and then pay the 50% into your IVA within the next 14 days and failure to do so could have serious consequences as it could be considered a breach of your IVA’s terms.
Rise in Income: When you have a rise in your income without a corresponding rise in your expenditure, the chances are you’re going to have to increase your IVA contribution. That’s because you’ve given your creditors the assurance that if you can afford to pay more during the IVA then you will.
Again, all extra income above 10% of your normal take home pay will become subject to a 50-50 split with your creditors.
Fall in Income: If your income falls during your IVA without a corresponding fall in your expenditure, your budget will become stretched and, as a result, you could find it extremely difficult to maintain your IVA payment.
Where possible, you should look to make reductions in your expenditure but, if this proves impractical then you should call us as soon as you start experiencing difficulties, because we can help.
Top tip: Monitor your income carefully and keep a track of any fluctuations you experience. Remember, communication is key, so if you’re experiencing problems, call us.
We have a vested interest in helping your IVA stay on track and we will do whatever we can to help.
Changes to your Expenditure
It’s normal to experience modest increases in expenditure over the course of a year, even if it is simply a result of regular consumer price inflation but keeping control over your costs of living is important when you are trying to maintain a balanced budget. That’s why you should be mindful of what you are spending and, whenever possible, look for opportunities to save money in order to help compensate for those increased costs you can’t control.
Obviously, experiencing a dramatic change to your personal circumstance, like moving home, getting married or starting a family, is likely to be more challenging and might require more than a simple adjustment to your daily spending habits.
So, again, if you see big changes on the horizon and have concerns about how these changes will impact on your IVA, then you should your contact us and, whenever possible, we will do all we can to ensure a smooth transition.
Top tip: Monitor your expenditure carefully and keep a track of any fluctuations you experience. Remember, communication is key, so if you’re experiencing problems, call us.
If your expenditure rises, explore ways to increase your income to compensate. Don’t forget to check for extra support through the benefits system.
Again, remember communication is key, and if you’re experiencing problems, contact us and we will do all we can to help.
IVA Payment Problems
Inevitably some people will experience payment problems during their IVA. If this is you, the first thing to remember is ‘don’t panic’ as we can help through one of two ways, without any major changes to your IVA.
Payment Reductions: We have the discretion to temporarily reduce your IVA payment by 15% if, through no fault of your own, you can no longer afford it. Typical justifiable reasons for this type of reduction would be unavoidable increases in budget costs, a reduction in household income or a combination of the two.
If your change in circumstances require a larger reduction than the 15% we have the discretion to apply, then it is possible for us to approach your creditors through a Variation Meeting to ask for a bigger reduction. Creditors can be persuaded to accept larger reductions than 15% but, in turn, are likely to demand an extension to your IVA’s term, to help compensate them for the losses caused by your reduction in repayments.
Payment Breaks: We also have the discretion to implement up to a 9-month payment break if, through no fault of your own, you can’t maintain your payment. Typical justifiable reasons for a payment break would be temporary unemployment, temporary loss of income or the absolute need to replace an expensive yet essential household item, such as a boiler or vehicle.
If a payment break is agreed, then your missed IVA payments will be added to the end of your IVA.
Top tip: Make contact with us as soon as you notice there’s a problem.
Whatever the reason behind your payment problem, you will, at some point, need to speak to us in order to get your IVA back on track, so there’s no point in delaying. We can then discuss what we can do to give your IVA the best chance of recovery.
Receiving Windfalls
‘Windfall’ is the term used to describe an unexpected financial gain. A lottery win or an inheritance are both classed as windfalls, as are certain elements of an insurance payout or a redundancy payment if it’s large enough. In an IVA, it’s the windfall clause that details your obligations to your creditors and explains what you must do with the money should you receive a windfall during your IVA.
In almost every circumstance you will be required to pay all of the windfall into the IVA.
If the windfall is large enough to repay your original outstanding balances in full, then we will seek to conclude your IVA immediately.
You might also be required to pay statutory interest on the outstanding balances in order for the IVA to be considered satisfied.
If your windfall is insufficient to successfully draw your IVA to a close, then you’ll be expected to pay all of your windfall into the IVA and continue with your IVA payments as scheduled.
Your IVA would then continue until either your original outstanding balances have been repaid in full, or until your IVA completes as originally agreed, whichever the sooner.
Top tip: If there is a possibility of you receiving a substantial inheritance during the term of your IVA you may be able to mitigate your exposure to this clause by taking professional advice.
Remember, once you receive a windfall, you’re legally obliged to declare it.
Exceptions to the windfall clause
Redundancy:
If you receive a redundancy payment, you will be allowed to keep an amount equivalent to 6 months of your old net income (after tax), in order that you can financially support yourself whilst looking for a new job. Any surplus above the 6 months net income must be passed into the IVA.
If you successfully obtain a new job before the 6 months net income runs out, you will be expected to transfer any remaining redundancy funds into your IVA.
Insurance Payouts:
If you receive an insurance payout related to a critical illness policy, then you could be allowed to retain some of this windfall to cover the costs of treatments or therapy. However, this will be at the discretion of your creditors and will usually be based on the personal circumstances surrounding your successful claim.
If your insurance payout is related to an injury claim, then you will be able to retain the element of the payout relating to damages for ‘pain and suffering’. Any other funds, such as those received for loss of earnings will be classed as a normal windfall and you should, therefore, expect to surrender them into your IVA.
Policies relating to income protection would normally be excluded from the windfall clause as, by definition, the received funds would be paid in lieu of your normal income.
The Homeowner Equity Clause
As you are a homeowner, you should make yourself familiar with the IVA’s equity clause.
The equity clause details the circumstances under which you will be expected to try to release equity from your home and explains what will happen if your equity can’t be released.
Contrary to most first impressions, the equity clause actually protects your home ownership, rather than threatening it because, as you will see, it restricts your creditors’ expectations towards the amount you must release whilst limiting the consequences of you being unable to release any equity at all.
Fundamentally, there’s no scenario under the equity clause that forces you to sell your home and if, through no fault of your own, you’re unable to release your equity, you’ll only be obliged to extend the term of your IVA for an extra 12 months instead.
The clause is triggered around month 54 of your IVA, where we will contact you to request that you to get a valuation of your property.
There are then 2 outcomes arising from that valuation:
- If your share of the releasable equity in your property is less than £5,000, then you’ll not be required to remortgage your property and your IVA will complete after its scheduled agreed term.
- If, at valuation, your share of the releasable equity is above £5,000 you’ll be required to make at least 2 attempts to release up to 85% of your share via a remortgage or a secured loan and pay that money into the IVA.
If you can release equity
If you are able find a remortgage or secured loan company that’s prepared to extend a loan to you, then the equity clause will place limitations on the loan amount, its monthly cost to you and its repayment term.
So, it’s in your interests to make yourself familiar with these limitations.
The limitations are:
- No more than 85% of your share of the property’s value to be released.
- The monthly cost of the new borrowing must not be more than half of your current monthly IVA payments.
- The total amount borrowed must not exceed your outstanding original debt, excluding statutory interest.
- All refinancing costs must be deducted from the released funds.
- Repayment term not to extend beyond your state retirement age or the existing term of the mortgage, whichever the longer.
If you can’t release equity
If you’re unable to acquire a remortgage or secured loan and can provide evidence that you have been rejected on at least 2 occasions you must then, either:
- Introduce 3rd party funds equal to the amount of equity you could not release.
- Extend the term of your IVA for 12 months in lieu of the equity you were unable to release.
Please Note: Failure to release equity is not considered a breach of the IVA and there’s no scenario under the equity clause that gives creditors the option to force you to sell your home. If, through no fault of your own, you’re unable to release the equity you’ll only be obliged to extend the term of your IVA for 12 months.
Selling your home during an IVA
Selling your home whilst in an IVA could have serious financial consequences to you because by selling and liquidating your equity you could, potentially, find yourself inadvertently subject to the Windfall Clause and risk the possibility of having to surrender everything above your 15% equity share into your IVA.
It is advisable, therefore, to seek guidance before you commit to making the sale. It may be possible for you to make a conditional offer to your creditors, by proposing a variation to your IVA that enables you to make a ‘Full & Final’ settlement using some of the sale proceeds.
If your creditors agree to your proposal, then you would avoid the Windfall Clause completely and potentially save yourself an awful lot of money.
Top tip: Call us to discuss selling your home before you make a decision, that way there will be no nasty surprises.
The IVA Closure Procedure
It usually takes us 2 – 3 months to formally close an IVA and we need this time to ensure all the necessary paperwork has been completed satisfactorily. Once we’re satisfied the paperwork’s in order and that you’ve satisfactorily fulfilled your obligation under the terms of the IVA, we’ll close your IVA and issue you a ‘Completion Certificate’.
Once the Completion Certificate is in your possession your IVA is officially over and any debts that were left unpaid by your IVA will have been written off by your creditors.
Top tip: Send a copy of your completion certificate to the 3 main Credit Reference Agencies (CRAs) Experian, Equifax and Call Credit.
They will then update your credit file to show your IVA as being ‘Satisfied’. You should also check your name has been removed from the Insolvency Register after 3 months from your completion date. If it hasn’t you should bring it to the attention of the Insolvency Service, who will remove it for you.
Getting Credit after an IVA
As you know, an IVA will damage your credit rating for 6 years from the start date, as normally recorded on your file.
As a result, whilst it’s perfectly acceptable for you to try and obtain credit after your IVA has completed successfully, the likelihood is your application will be rejected.
However, after 6 years from the start date of your IVA has elapsed, your IVA will be removed from your credit file and your chances of obtaining credit will improve dramatically.
It’s worth checking your credit file at this point, just to ensure there are no errors and that everything is recorded correctly.
By seeking credit from specialist lenders such as Capital One, Vanquis.co.uk or Aquacard.co.uk you can build your credit rating up over a few months. Simply using new credit facilities and making regular repayments will be all that’s required to recover your creditworthiness.
You should also talk to your bank and request an upgrade to a regular current account, which generally come with an overdraft and cheque book.
Top tip: Start rebuilding creditors trust by proving you can handle credit responsibly. Make sure you don’t over-stretch yourself and always make your contractual payments on time.
