Examples of the different types of IVAs
An IVA is a flexible agreement designed to help you become debt free quicker. It typically involves paying one monthly sum to your creditors for an agreed period of time – usually five years – and after that period, the rest of your debt is written off. However we understand that life is not straightforward and your circumstances might change in the five year period so your IVA has a degree of flexibility. An IVA can be extended if need be or paid off quicker. Below you will find some real life examples of the different types of IVAs that have helped our clients get out of debt.
If your circumstances changed throughout your IVA and you couldn’t afford to make your payments, you could take a break for a few months until you found your feet again. You will need to talk to your IP about your change in situation but he can allow a payment break of up to six months without consulting your creditors. Any payments you miss will be added on to the end of your IVA, however once complete the remainder of your debts will be written off as agreed. Payment breaks are ideal for short term changes – for example if you lost your job, your boiler broke or you needed to pay for an urgent car repair.
We helped a couple who owed approximately £30,000 between them on unsecured loans and credit cards. After their living costs were taken into account, they could afford to make a monthly payment of £310 to their debts. However, they were soon to be expecting a new baby and this meant their household income would reduce due to maternity leave. This meant they would not be able to afford any payments to their debts for six months.
We set up an IVA for each client, in which the creditors agreed for them to have a payment break from paying their debts for six months while they had no surplus. They would then continue paying their IVA, taking into account their new increased living expenses. Their new payment was £150.
Creditors ultimately agreed to write off £20,000 of their debt and reduced their monthly debt payments by more than £500.
6 year payment period
If you proposed an IVA to your creditors for a five year period but the percentage of the debt they would receive was too low, they might suggest you pay monthly contributions for an extra year.
We helped a sales manager who owed over £100,000 on unsecured loans, credit cards and store cards. He used to earn significantly more in his previous job but was made redundant, and had a reduced income. After his living costs, he could afford to make a monthly payment of £200 to his arrangement.
Due to there being a low return to creditors over 5 years, the client proposed a six year IVA to his unsecured creditors. The client preferred this over bankruptcy due to the possible effects of bankruptcy on his future career.
Creditors accepted the IVA, as they agreed it was the highest return they were likely to receive, even though the return was lower than they would usually agree to. Creditors agreed to write off £85,000 of his unsecured debt and reduced his monthly debt payments by more than £2,000.
Making a full repayment
If your circumstances were to change during your IVA and you could afford to repay the entirety of your debts plus statutory interest and fees, then your plan could finish earlier than the original agreement. If you could afford to repay your entire debt amount in less than five years, an IVA might not be the right solution for you. In some cases however an IVA might be the most beneficial option even if you can afford the full repayment.
We helped a couple who owed £25,000 to many different unsecured creditors. There were 22 in all, comprising loans, credit cards, store cards and pay-day loans. The husband worked as a security guard and the wife worked as a waitress. After their living costs were taken into account, they could afford to make a monthly payment of £500 to their debts.
We discussed the available debt solutions with the clients, and they were initially keen on entering a Debt Management Plan, as it appears they will be able pay their debts in full in around 4 years. However, the clients had already been making reduced payments to their debts themselves and six of the creditors had already indicated they would not be prepared to freeze interest and charges.
Due to this, they preferred to each enter an IVA. Even though they would pay their debt back in full over five years, they preferred the security of knowing that creditors must freeze interest and charges in an IVA. Their IVA lasted five years, after which they were debt-free.
Third party contributes to monthly payments
If you can’t afford to make monthly payments to your creditors but had a high debt level and wished to avoid bankruptcy, the option of third party contributions could be discussed. For example a partner or relative could help you fund your monthly repayments.
We helped a factory worker who owed over £30,000 on unsecured loans, credit cards and ‘payday loans’. He owned his own home where he lived with his wife and two children. He was desperate to avoid bankruptcy as he didn’t want to lose his property. Unfortunately, after taking into account his living costs, he could not afford to make a monthly payment to his unsecured debts.
When we discussed the debt solution options with him, he mentioned that his parents would be willing to contribute £100 a month for him to pay his debts. We set up an IVA for him where his parents paid £100 a month to his IVA for five years. He therefore avoided bankruptcy which would probably affect his property and was debt-free within five years. Creditors agreed to write off £24,000 of his unsecured debt.
A shorter term arrangement
An IVA can be agreed for a shorter term than five years if you don’t think you can afford to pay for that long a period. For example if you were due to retire or had to leave your job in the middle of your agreement due to illness, a shorter term could be arranged.
We helped an accountant who owed £80,000 on unsecured loans and credit cards.
She lived with her partner in a jointly owned property with £30,000 equity. After her living costs, she could afford to make a monthly payment of £600 to her debts.
However the accountant was due to retire in three years’ time and had no pension provision so could not then afford to make payments to her creditors. She was also worried about bankruptcy as it may affect her employment, and also her property.
We set up an IVA, where she made monthly contributions of £600 per month for the next three years. As she could not afford to make any payments to her unsecured creditors when she retired, her creditors agreed that the IVA could finish after three years. Creditors agreed to write off nearly £60,000 of her debt and reduced her monthly debt payments by more than £2,000.
A shorter term arrangement with lump sum
A shorter term arrangement could be agreed with the introduction of a lump sum. You could agree to pay monthly payments for a period of time and then offer a lump sum if you knew you were due to receive a large amount of money.
We helped a police officer who owed £40,000 on unsecured loans and credit cards.
She lived with her partner in rented accommodation. After her living costs were taken into account, she could afford to make a monthly payment of £300 to her debts. However she was due to retire in 2 years, so would not be able to afford this payment once she retired. She did inform us that she was to receive a lump sum from her police pension of £30,000 when she retired.
We set up an IVA, where she made monthly contributions of £300 per month for the next two years. When she retired, her creditors agreed to accept £15,000 from her police pension in full and final settlement of her IVA. They realised she needed the other £15,000 to help support her retirement. Her IVA therefore finished in two years; creditors agreed to write off nearly £20,000 of her unsecured debt and reduced her monthly debt payments by more than £800.