A standard monthly payment IVA usually lasts for 5 years. However the Arrangement could be extended and made longer depending on your circumstances.
Included in this article:
- Can an IVA be extended from 5 to 6 years?
- Will it be extended if you are a home owner?
- What happens if you miss payments?
- Could the Arrangement last longer if you reduce your payment amount?
Can an IVA be extended from 5 to 6 years?
An IVA based on monthly payments typically lasts 5 years. It is normal to offer to pay for 60 months in the initial proposal. However, this will not always be accepted.
Over the past few years it has been increasingly common for creditors to demand that the agreement be extended to 6 years (72 months).
Your IVA might be extended in this way if you are offering a relatively low monthly payment. Where you hope to pay £100/mth or less, you should expect that your creditors will require 6 years of payments.
Your creditors don’t have to agree to your IVA proposal. They are within their rights to demand that the number of payments is extended.
Will your IVA be extended if you are a home owner?
If you are a home owner, your IVA will not automatically be extended. It depends on the amount of equity in your property.
Where the equity is less than £5000, it is normally ignored. In this scenario, the Arrangement should last the standard 5 year period. It will not be extended as long as your monthly payments are reasonable.
If you have more than £5000 of equity, whether or not the IVA will be extended depends on whether you are able to release any of this to increase the amount of your debt you pay back.
The Arrangement should last just 5 years if you can release equity. But where you can’t, an extra 12 months of payments will be added as compensation for your creditors.
As a home owner, it is important that you understand exactly what responsibility you will have regarding equity release before you agree to go ahead with your IVA.
What happens to your IVA if you miss payments?
If you miss payments during your IVA, you have to make these up. Your IVA will typically be extended by the number of months you have missed.
Where your missed payments were agreed in advance, this is known as an official payment break. You can take up to 9 months of payment breaks during your IVA if you need to. The missed payments are always added to the end of the agreement.
It is important to understand that you can’t just decide to miss payments without the agreement of your IVA company. If you do, the Arrangement could be at risk of failing.
You will normally be expected to make up for any payments you miss without agreement by increasing your monthly payment amount. If you can’t afford to do this, you might be allowed to extend the Arrangement. But this will be up to your IVA company to decide.
Could the Arrangement last longer if you reduce your payment amount?
Reducing your payments during your IVA might be possible. However, this doesn’t come without a cost.
Where a payment reduction is agreed, you should expect the length of IVA to be extended by between 1-2 years – depending on the amount of reduction required.
The extra payments added to the end of the agreement are to compensate your creditors for the smaller payments you make from now on.
Generally speaking your IVA company will require an extension of the agreement regardless of the amount your payments reduce. They should be able to agree up to a 10% reduction without getting agreement from creditors.
However, even this type of reduction will normally result in your IVA being extended.
Want more advice about starting an IVA? Give us a call (0800 011 4712) or complete the form below. Its free and confidential.