Looking for a debt solution that fits your income and expenditure requirements and the restrictions of your financial circumstances can often be hassling or difficult to do.
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So, if you’ve looked into all of your options and determined that Individual Voluntary Arrangements is the best fit for your financial situation, it’s critical that you get the help of insolvency practitioners (IPs) to understand how an IVA works.
An Individual Voluntary Arrangement (IVA) is a viable solution. However, it is a legally binding agreement so you and your money advice service should talk about how you can cover the monthly payment scheme.
On top of that, they can help you better manage your finances given all the restrictions. So, should you want to repay your IVA earlier, have other additional expenses, or have additional questions, then read on.
Table of Content
- 1 What are IVAs spending restrictions?
- 2 How to live on a budget
- 3 Can I go on a holiday during my IVA?
- 4 What happens if you go over spending restrictions?
- 5 Keep an eye on your income
- 6 What if There Is an Emergency Expense?
- 7 Can I discuss my IVA with another insolvency practitioner?
- 8 Can I apply for a credit card while on an IVA?
- 9 Can I change bank accounts whilst in an IVA?
- 10 Can I open a business bank account?
- 11 What happens if you inherit money while in an IVA?
- 12 What happens to my IVA if I get pregnant and don’t work?
- 13 Can I continue to pay my child’s private school fees on an IVA?
- 14 Can I still claim benefits when on an IVA?
- 15 Can I get a mobile phone contract with an IVA?
- 16 Can an IVA take my pension?
- 17 Top Tips For Living In An IVA
- 18 Summary
- 19 IVA Debt Help Information
- 20 Other Debt Solutions
What are IVAs spending restrictions?
When you owe money to creditors, it makes sense to go with an IVA, but even this debt management plan has restrictions.
Your IPs will be there providing debt advice and telling you what to do if your IVA fails, and they make sure it never gets to that point to begin with. However, they don’t have access to your bank accounts, nor will they be continually monitoring your spending. Instead, an annual assessment of your income and expenditure will be conducted, or if you request a review due to a change in circumstances.
They may request copies of your bank statements to verify certain expenditures and just make sure that you’re living within your means and you’re able to make all the required payments.
Applying for credit
If you want to apply for credit, you must first notify and obtain approval and debt help from your Insolvency Practitioner. Your IP will review your finances and other remaining debts once more and determine whether or not you are eligible.
It is, however, strongly advised that you do not add more credit while in an IVA, as the chances of being approved for new credit are quite slim.
The windfall clause
A windfall clause is any amount of money obtained unexpectedly during the course of an IVA. This includes any money you obtain by winning the lottery, inheriting a significant sum of money, or receiving a large bonus payment.
Now, you must pay the money into your IVA if your IVA has a windfall clause and let your IP know about this additional income being used to pay off your IVA.
You won’t be allowed to open a bank account if you have an overdraft, and your account may be suspended if you have other debts with your bank. However, you can easily open a new account with another bank.
When you have an IVA, you have to be able to demonstrate to your creditors that you’re living within your financial means. Your IP will carefully examine your income and expenses and establish a reasonable budget based on creditor rules.
How do I manage my IVA budget?
The main reasons why so many people choose IVAs over other debt solutions is due to two factors:
- the first one being that you can get a significant portion of your debt written off.
- The second one being that you will never be obligated to pay more than you can afford.
Your IP meets with you and evaluates your income and expenses before calculating your monthly payments.
Only what you can afford will be used to determine your monthly payments. Being in an IVA does, however, imply that you will contribute all of your extra income to your IVA payments.
This implies you can only spend your money on necessities like food and shelter. Your insolvency practitioners will warn you that you should avoid spending any of it on frivolous or useless purchases. The rest of your revenue should be used to make your monthly payments.
You’re obligated to follow this all throughout the period of your IVA, which is around 5 to 6 years.
How to live on a budget
On the last page of your IVA proposal, you’ll find your suggested budget. Your budget is created by taking into consideration your income, monthly expenses, and debts. For many folks, an IVA remains to be difficult especially since it might be the first time they’ve actually sat down and devised a household budget.
For many others, this may be their first time sticking to a budget without resorting to credit. If you’ve had difficulties managing your debt in the past, you’re likely to have trouble managing your budget as well.
This is why many people fail to pay their IVAs or miss payments when they first start out.
In order to keep your IVA functioning well, you must learn to be fiscally responsible and stick to your projected budget. If you’re experiencing problems managing your finances, you can get guidance and information from your IP. They might be able to come up with a solution.
Can I go on a holiday during my IVA?
You can go on holiday but it may be unwise to do so since you need to follow a strict budget. Although, you might be able to work something out if you’re planning a vacation or a trip to see friends or relatives. But it is highly advised that you stick to your budget.
As long as you keep within your budget, there are no laws that say you can’t go on vacation.
Funding a holiday over months
Unless your family or friends are funding your holiday, it may be extremely difficult to afford to go on a vacation right away. So, your insolvency practitioners might suggest that the best course of action here would be to save your money and treat the vacation as a monthly payment you have to fund alongside your IVA.
Do not borrow money
It’s crucial to remember that you should avoid borrowing money just to go on vacation. Your IP will never approve this, and if you do it without alerting your IP, you will be breaking the rules of your IVA, and your IVA may fail as a result.
Check your additional income threshold
Your IP will notify you of your increased income threshold after your IVA has been accepted and registered. This is a statistic that indicates how much extra money you can make without having to pay it towards your IVA.
This figure is usually 10% more than the income you mentioned in your original IVA petition. So long as the additional income is less than 10% of the monthly income indicated in your IVA proposal, you can spend it any way you wish.
It would be a good idea to put this extra money aside for a few months in order to pay for your vacation. You could also earn more money by working longer hours, receiving bonuses or commissions, and so on.
Can I move abroad during my IVA?
While you may be able to go on holiday, it would be best if you contacted your insolvency practitioner about your intention to move and discuss this with them directly. That way, you won’t be in breach of any IVA payment or your agreement.
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What happens if you go over spending restrictions?
If you start missing IVA payments, your Insolvency Practitioner will first ask to review your income and expenses to see if your budget is still manageable.
They may also seek bank statements to confirm that your spending is within reason and that you are not overspending on fancy or unneeded products.
If you’re having trouble sticking to your budget, make sure it’s practical. Where your budget appears to be manageable, your IP will expect you to keep up with your IVA payments.
Keep in mind that creditors may impose restrictions on certain types of spending.
This is to create a fair balance between you and your creditors because if the IVA is successful, they will be able to write off a percentage of their debt.
Keep an eye on your income
Normally, your Insolvency Practitioner knows that you’ll have some amount of money you have for yourself and your expenditures. This is about 10% of what you make that isn’t part of the money you use to pay off your debt solutions. However, if you do make more than this, you will have to let your IP know so they can give you proper debt advice if needed.
You should note though that this isn’t required. But, failure to let your IP know about other income sources may result in your IVA failing.
When you notify your IP of your increased income, he or she will work out the necessary changes to your IVA payments.
It’s important to remember that if your income declines, you’ll have to do the same thing.
Inform your IP of the situation, and they will calculate your IVA payments for you. Your IVA payments will be reduced to make them more affordable.
What if There Is an Emergency Expense?
When your IP analyses your income and expenditure statement and creates your budget, they will account for any unexpected expenses, such as an automobile or home maintenance.
However, it’s your duty to set aside this amount each month to cover any unexpected expenses outside of your individual voluntary arrangement.
If you have an emergency and are unable to afford the expenditures or will be unable to complete your IVA responsibilities, call your IP as soon as possible so they can give you the best debt advice moving forward.
You may be able to seek a payment decrease or a payment holiday in certain circumstances. Keep in mind that this may have an impact on the length of the debt solutions.
Can I discuss my IVA with another insolvency practitioner?
Simply put, yes, you can ask for debt advice from another IP.
After all, there’s no law that says you can’t talk about your IVA debt solution with any other money advice service.
However, you’d have to personally ask an IP if they’d be willing to talk about it.
If you have any questions concerning the insolvency process, you can call the Insolvency Service’s information line. However, they can’t discuss individual insolvency cases with you.
You can also use their online services to find an Insolvency Practitioner.
Can I apply for a credit card while on an IVA?
Your IVA may include restrictions prohibiting the use of additional credit during the IVA’s period, as well as a requirement to notify of a change of address.
It’s better to speak with the IP in charge of your case’s supervision and explain what’s transpired.
I have a credit card, will the IVA company find out?
If you contact your IVA firm and inform them of the card, as required, and show proof of use, they will be able to tell you whether this will cause any problems or is simply something worth noting.
It may or may not be an issue depending on whether your IVA is already in place or is still in the proposal stage, as well as the purpose for the card.
Failure to notify could result in your IVA being rejected at the creditors’ meeting, or failing if it is already in place.
Can I get a debit card while on an IVA?
Nothing stands in the way of having a debit card and a bank account. Finding someone who will offer you one is the difficult part.
The Co-op and Yorkshire Banks are said to be sensitive to those in IVAs. One thing to keep in mind. With an IVA, you won’t be able to get a loan or have an overdraft.
Can I change bank accounts whilst in an IVA?
Nothing prevents you from changing your bank accounts or creating a new bank account. However, don’t close your current bank or building society account if your credit history makes it tough to open a new one.
Can I open a business bank account?
Before seeking for more credit, you should speak with your Insolvency Practitioner and get proper debt help or advice because whether or not you are allowed to open business bank accounts depends on the precise specifics of your IVA contribution.
If your IVA allows you to apply for more credit, your credit application could be harmed if a creditor refuses to lend to you. After all, if you owe money to your IVA, you should prioritise paying that off first.
Your Insolvency Practitioner can assess your credit rating and credit report, your expenses, and your monthly contribution before they can give you advice on whether or not you should open a new account for your business.
What happens if you inherit money while in an IVA?
Any assets received while you’re in an IVA must be reported to your Insolvency Practitioner as they will have to assess this and provide debt advice if needed. Any inheritance of money or property counts as an IVA asset.
The amount of time you’re given to deal with this is defined by a clause in the standard debt solution terms and conditions.
It is customary to notify the Supervisor after one month of obtaining the asset, and then to take reasonable steps to realise the asset within three months.
Assets may only be sold or realised to the degree required to fully repay creditors. For example, inheriting a portfolio of properties does not always imply that all of them must be sold.
It may only be necessary to sell one property in order to pay off all obligations, therefore this would be the need.
Even if you have spent the inheritance money, you may be required to report it. The best advise is to plan for the worst, i.e. repay the inheritance, while hoping for the best.
What happens to my IVA if I get pregnant and don’t work?
Your IP would need to notify your creditors of your change of circumstances and arrange for a payment holiday on your behalf.
Any late payments would be added to the total at the end of the contract.
If you need to take a significant period of time off, you may need to submit a change to your IVA, which is not always accepted. Take a look at our post on IVA and employment limits for more information.
Can I continue to pay my child’s private school fees on an IVA?
Unless you can make a compelling argument to the Official Receiver or IP, it’s doubtful that you’ll be permitted to continue paying school fees.
It might be doable if there is only one year left before secondary school.
Speak with some local IPs about your situation; the majority of them will give you an opinion or will do it for free.
You are effectively asking your creditors to support your children’s education if you include school tuition in an IVA application!
Can I still claim benefits when on an IVA?
It would be a good idea to speak with your IVA supervisor about this. You should tell them nevertheless because IVAs are an insolvency procedure.
Can I get a mobile phone contract with an IVA?
Yes, you can! There’s no reason why you can’t have a mobile phone contract while you’re in an IVA, but you should consider the cost and if it will affect your capacity to pay your IVA.
Contracts for mobile phones are typically subject to a search of your credit reference agency files, and each provider may have different opinions on who to authorise a contract based on credit history.
Before submitting an application, you might phone a few of their customer service lines and ask the question.
Can an IVA take my pension?
If you opt to draw it, it will be classified as a windfall, which means it will be included in the IVA. However, you would not generally be expected to release a pension payment unless your IVA agreement specifically states that you must. Before you do anything, you should seek counsel from your IP.
Top Tips For Living In An IVA
An IVA doesn’t have to be limiting, and it can have a positive outcome.
People who have gone through an IVA may discover that they have learnt a lot about money management and have emerged as knowledgeable money managers and financially self-sufficient.
Communicate with your Insolvency Practitioner
These representatives are available to assist you in completing your IVA. Keep lines of contact open with them, ask them questions, and keep them informed of any changes in your situation.
This will greatly boost your chances of finishing your IVA and being debt-free.
Focus on budgeting
You might be amazed at how much easier it is to make your monthly payments once you’ve gotten used to putting down a steady amount of monthly contributions.
Immersing yourself in the budgeting process, making spreadsheets, and looking for lower-cost electricity and broadband suppliers are just some ways to help you focus on your budget and get you used to make your IVA payments doable.
Reflect on your money management
Five to six years are all that’s required when getting into an IVA. In the broad scheme of things, this isn’t a lot of time when you consider that the end result will restore your financial independence.
So, while it may sound difficult, you should try to take this opportunity to think about your previous money management mistakes and how you can avoid them in the future.
Keep up good habits
In time, you’ll get used to paying monthly payments towards your debts while you’ve been in an IVA.
Instead of raising your overall monthly spending by this amount, consider starting a savings account and putting the same amount of money away each month until this is completed.
This will assist you in saving for significant purchases, holidays, and Christmas.
When considering the debt solution that works best for you, your current expenses and personal spending habits, living conditions, and disposable income, it’s understandable how you’d find it overwhelming and confusing at some point.
That’s why it’s worth seeking debt advice from an IP or someone who can give you sound debt help before looking for an IVA provider because they can help you with everything. Budgets and spending limits in IVAs may appear tough, but they are in place to keep you on track to finishing your IVA and becoming financially independent.
When putting together your budget, it’s critical that you think carefully about all of your living costs and include as much information as possible. When you’re putting together a budget with your IP, you’ll need to give proof and paperwork for both your income and your expenses.
This might include bank statements, receipts, payslips, and so on – please keep in mind that your IVA monthly payments will be calculated based on the figures you give.
It’s also critical that you budget for monthly allowances for annual expenses that are necessary. It’s often a good idea to keep track of annual expenses like these so you’re not caught off guard when they occur.
If you aren’t prepared for such payments, you risk skipping your IVA payment or paying it late, jeopardising your IVA’s success. So, if you think you’re ready to take on an IVA, then reach out to a provider today!
Interested In Finding Out More About The Debt Solutions Available?Find Out More
IVA Debt Help Information
If you want to know more about the debt help plan of an IVA we have all articles related to individual voluntary arrangements here:
- Best IVA Companies in Manchester
- Best IVA Companies UK
- Can I Pay Off My IVA Early?
- How to Apply for an IVA
- Is an IVA Worth It?
- IVA and Inheritance
- IVA Companies to Avoid
- IVA Criteria
- IVA Debt Certificate
- IVA Examples
- IVA Forum
- IVA Process
- IVA Proposal
- IVA Protocol
- IVA Register
- IVA Reviews
- IVA Spending Restrictions
- Joint or Interlocking IVA
- Loans with an IVA
- Meeting of Creditors
- Mortgage with an IVA - Full Guide
- What Happens If an IVA Fails?
- What is an IVA?
- Why Creditors May Reject an IVA Application
Other Debt Solutions
An IVA is not the only debt solution you have and this is where speaking to a qualified debt advisor is very important.
After speaking to a debt consultant you might realise the best solutions are one of the following:
- Best DAS Companies
- Best Full and Final Companies
- Best IVA Companies in Manchester
- Best IVA Companies UK
- Best Sequestration Companies
- Best Trust Deed Companies
- Debt Consolidation Companies
- Debt Relief Order Companies
- DMP Companies
Make sure you take time to understand all the debt solutions available before making a decision because DMPs (aka debt management plans) are also a popular choice in the United Kingdom.