IVA payment reduction guidance – Cost of living crisis – 2023 Guide

IVA payment reduction guidance – Cost of living crisis – 2023 Guide

New IVA payment reduction guidance has been issued by the Insolvency Service in response to the cost of living crisis. If you are struggling to pay your IVA, this could help you lower your payments to a more managable amount.

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What is the new IVA payment reduction guidance?

You may be struggling to pay your IVA because of recent increases in the cost of living. Things such as car petrol and diesel, electricity and gas bills and food have been rising rapidly during 2022 and 2023.

If you are having difficulty, Insolvency Service guidance issued in June 2022 means your IVA company could now be able to help by reducing your payment by up to 50% or £75, whichever is higher.

Before any reduction is allowed, you will have to carry out a full income and expenses review. You will need to prove how much your expenses have increased with things like copies of utility bills and bank statements. The review will show by how much your surplus income has fallen. Your IVA company should then be able to reduce your payment accordingly.

Clearly, if the amount you can still afford to pay into your IVA has reduced by less than 50%, your payment will only be reduced by that amount. It would not be reduced by the full 50%.

Any payment reduction will also result in your IVA being extended. This will usually be by an extra 12 months of payments.

Struggling to get your head round all of this? We can help. Call us (0800 011 4712) or complete the form below. The advice is free and confidential.

Should you ask for a payment break?

Instead of agreeing a payment reduction and 12 month extension, would you be better off taking a payment break? It is unlikely that this will be a good idea.

This option is only really sensible if you have a short term payment problem. Once the issue has passed (normally within a number of months) you can then restart your payments at the same amount.

However, the current cost of living crisis is unlikely to be short term. It is predicted that prices will keep rising until at least the end of the year. When they do stop going up, they are unlikely to fall back. As a result, at the end of any break you will still not be able to make your payments.

Taking a payment break would simply be putting off dealing with the problem that your IVA is no longer affordable.

Could your IVA be settled early?

The new guidance also takes into account the possibility that you will need a payment reduction of more than 50%. This is still an option. However, it will need the approval of all your creditors using a formal variation.

But what happens if the size of the reduction you require means your IVA is no longer sustainable. As a rule of thumb, this would automatically be the case if your ongoing payments need to fall below £50/mth.

In this situation, your IVA company should first consider whether the Arrangement can be settled in full based on the payments you have already made. If this option seems reasonable, they can propose it to your creditors.

Where the amount you have already paid in is deemed too low to propose a settlement in full, it is likely that your IVA will fail.

Options if your IVA is no longer sustainable

If your IVA fails, you will still be liable for your debt. Of course, the amount owing will depend on how much you were paying into your IVA and for how long.

Given your payments were relatively low and you were paying for 18 months or less, it is likely that the outstanding balance will not have reduced by much (if at all). You will therefore need a plan for how to manage your debt moving forward.

Your options will largely depend on whether or not you are a home owner. If you are (and there is equity in your property), your best option is likely to be a debt management plan.

Where you are living in rented property (or your house is in negative equity) you should also consider either bankruptcy or a debt relief order. Given you have nothing to lose, one of these options could be a life saver. You will not have to make further payments towards your debt if you can’t afford to do so.

Struggling to pay your IVA? For free, confidential advice, call us (0800 011 4712) or complete the form below.

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