An Individual Voluntary Arrangement (IVA) can help you get on top of your debts and make affordable repayments, but terms and conditions apply. Find out more with our quick guide to IVA spending restrictions
How will an IVA impact my life?
Individual Voluntary Arrangements (IVAs) are a popular debt management solution, but it will impact your life in many ways. If you have some money that you can put towards your debts – but struggle to keep up with all your repayments – an IVA can help by implementing a payment plan that works with your budget. You’ll typically need to work with an Insolvency Practitioner, who will put together your IVA proposal and deal with your creditors on your behalf.
IVAs normally last for five or six years and can affect your lifestyle and financial situation throughout that time. During your IVA term, you’ll need to be completely honest with your Insolvency Practitioner and declare all your assets upfront so they can be excluded from your IVA. While you may be able to exclude your home or car, any savings you have will usually have to be used to pay off your creditors.
It’s your Insolvency Practitioner’s job to put together a budget and payment plan that’s tailored to your circumstances. Your budget will be reviewed as a minimum on an annual basis and will stay in place throughout the IVA term. The payment plan is based on how much you can afford to pay towards your debts. You’ll likely be expected to use almost all your disposable income (the money left over once you’ve covered the essentials) to pay off your creditors. This means living without some luxuries throughout your IVA term.
Certain jobs can also be affected if you enter an IVA, so you may want to consider your options especially carefully if you work in finance, law, property, or accountancy.
What is a windfall clause?
A windfall clause is normally written into your agreement to account for any improvements in your financial situation. Things can change a lot over a period of five or six years; you might sell your home and earn a profit, get a raise at work, receive an inheritance, or even win the lottery!
There is some flexibility as most IVAs come with an additional income threshold, which lets you keep any money earned from taking on overtime or working extra shifts as long as your overall income is less than 10% higher than the income proposed in your IVA. Any funds that would take you over that 10% must be declared to your Insolvency Practitioner and, if you have a windfall clause, the extra money will likely need to be paid into your IVA.
How does an IVA affect my credit score?
When you enter an IVA, this will be recorded on your credit file and could negatively affect your score for up to six years. You will also be added to the Individual Insolvency Register (IIR), which is open to the public.
As an IVA shows that you’ve had difficulties paying back your debts in the past, it can harm your ability to qualify for new loans and other types of credit like a mobile phone contract. A poor credit score can also affect your ability to rent a property.
The good news is that credit scores aren’t fixed and can change over time. Once your IVA ends and has been removed from your credit report, you can take steps to improve your credit score.
Can I get a new loan with an IVA?
In an IVA, you can’t take out a new loan over £500 without getting written permission from your Insolvency Practitioner. They might approve the request if your loan is essential, but otherwise you’re unlikely to be able to take out a large loan during your IVA term. The only exception to this rule is if you need credit to pay for utilities like water, gas, or electricity.
While not impossible, it can also be harder to secure credit for up to six years after entering an IVA. As the IVA will be marked on your credit report, indicating that you might be an unreliable borrower, you could find it difficult to qualify for a household goods loan or car finance.
Can I go on holiday while in an IVA?
If you’re dreaming of jetting off for a week in the sun, you might need to stay closer to home during your IVA. An IVA comes with a strict budget that limits your disposable income, making it harder to save for a holiday. This doesn’t mean you need to give up on getaways completely while in an IVA; you can put aside a little each month or make the most of your additional income threshold to save for a holiday.
Can I pay into my pension while in an IVA?
Money that you’ve already paid into a private or workplace pension won’t usually be included in your IVA and won’t be available to your creditors. However, they may request that you don’t make any additional payments into your pension during the IVA term. This can be discussed with your Insolvency Practitioner when writing your IVA proposal. You could request that these contributions continue if you can argue that having a pension in the future is essential and the payments aren’t unreasonably high.
Looking for support to navigate the IVA process and any spending restrictions? Our friendly team of experts is here to help. Give us a call on 0161 8260 585 or send a message here