It is quite possible to have a change of circumstances during an IVA. If this happens the amount you pay could go up or down.
- When do IVA Payments increase
- Could your payments go down?
- What if the change is temporary?
- Options if you can no longer pay your IVA
When do IVA Payments Increase?
The amount you pay into your IVA is not fixed. If you have a permanent change of circumstances it could result in your payments going up or down. If your income increases or expenses fall the payments are likely to go up.
After a pay rise your Disposable Income will be reviewed. If it has risen the additional amount is split 50/50 between you and your IVA. So if your disposable income has increased from £100/mth to £150 / mth your payment will increase to £125/mth.
If there has been a permanent reduction in your expenses your payments are also likely to rise. A good example of falling expenses would be after a car HP finishes. Your payments would then rise by the equivalent fall in your expenses.
If your monthly payment increases your IVA will not be paid off any faster. The increase simply means that your creditors get back more of the debt they are owed.
Could your Payments go down during your IVA?
It may be possible to reduce your payments if your Disposable Income falls permanently. This could happen if you have a drop in income or your living expenses permanently increase.
Your IVA company will assess the impact of the change of circumstances by asking you to submit a new income and expenditure budget. They will then decide if a reduction of your payments is necessary.
If your payments need to reduce by less than 10% the change can be made simply by your IVA Company. For greater reductions a formal variation must be agreed with your creditors. In return for allowing you to reduce your payments they will normally require a 12 month extension of the Arrangement.
Your IVA company will only consider increases in living expenses resulting from significant changes such as the birth of a baby. Payments cannot normally be reduced after general increases in the cost of living.
What if you have a temporary Change of Circumstances?
It may be that your change of circumstances is only temporary. One of the most common reasons for this is an unforseen financial emergency. Perhaps you need to carry out unexpected repairs to your car or home.
If this occurs you must speak to your IVA company immediately. They can arrange for you to have a break from your payments. You can then use the money you save to pay the expenses you are facing.
Any payments that you miss during your Arrangement will need be added at the end. As such you still pay the same amount overall but the length is extended.
Do not be tempted to borrow more during an IVA to help you fund a financial emergency. This is against the rules of the Arrangement and could result in its failure.
Options if you can no longer pay your IVA
If your Disposable Income becomes too low you may not be able to continue with your IVA. The amount will differ in each case. However the Arrangement is unlikely to be sustainable of your DI reduces to less than £60 a month.
In these circumstances you may be in a position to settle the Arrangement with a cash lump sum. This might be possible if you have received a redundancy payment or you can raise money from a third party.
If it cannot be settled the Arrangement is likely to fail. In these circumstances you will still owe much of your original debt and will need to consider an alternative debt solution.
If your circumstances become worse just before the end of your IVA your creditors might accept the payments to date in full settlement.