If unexpected expenditures come up during your IVA you should consider a payment break. This will help manage the financial emergency without borrowing more.
- How does an IVA Payment Break work?
- When will a payment break be allowed?
- How long can a Payment Break Last
- What happens to the payments you miss?
How does an IVA Payment Break work?
A payment break allows you to temporarily suspend your monthly IVA payments. Instead of paying the Arrangement you save the money and use it to cover an unexpected financial emergency.
You are not allowed to just stop making your agreed payments whenever you like. This would be a breach of your Arrangement. You must first get written agreement from your Insolvency Practitioner (IP).
Generally speaking if your need is real your IP will be willing to help. They understad that without an agreed break you might be forced to stop paying your IVA anyway or worse still borrow more.
If you have a genuine financial emergency your IVA Company will normally allow you to take a payment break to cover it.
When will a Payment Break be allowed?
A payment break will normally be allowed if you are facing short term costs which would put your IVA at risk if they are not resolved. For example if you need to repair your car or your income has fallen due to a period of maternity.
There are also circumstances which might not have a direct affect on your IVA but which would warrent a break. These might include needing to replace a washing machine or to pay for foreign travel to visit a sick relative.
However a payment break is not suitable if you have a long term change in circumstances or are simply struggling with the Agreement. In these circumstances you need to talk to your IP about reducing your monthly payments.
You are unlikely to be allowed a payment break unless you have a real financial emergency. It will not be allowed if you just want to pay for a holiday.
How long can a Payment Break Last
The length of the payment break can vary depending on the amount of money you need to save. It could last for a single month or a number of months. Ultimately you will need to agree it with your IP.
If your agreement is based on the IVA Protocol the number of months break you can take in total is prescribed. If the Arrangement started before June 2016 it is 6. If it started later then as standard you are allowed to take up to 9.
Having said that the length of any break is always down to your IP’s discretion. Where required and reasonable it may last longer than 9 months although the agreement of your creditors might have to be sought.
It is possible to take more than one break during your IVA. It is not guaranteed that you will have only one financial emergency during the course of the Arrangement.
What happens to the Payments you miss?
You have to make up the payments you miss due to taking a payment break. Most commonly they will be added to the end of your Arrangement.
It is important to understand that taking the break will mean the length of your IVA will be extended. If you miss 9 months payments during the arrangement these will have to be added to the end.
Your payments may increase during the Arrangement because your finacial circumstances have improved. Any payments added to the end are payable at this rate. Not the lower rate of the payments missed.
You should have to make up payments missed due to a payment break by increasing your ongoing payments.