How redundancy will affect your IVA
When an IVA is drawn up your insolvency practitioner will make sure it is affordable and suits your circumstances. However, with a typical agreement lasting as long as five years, it’s pretty obvious that your circumstances may change during that time.
For example, you may have an IVA in place but then be made redundant during the term. If that’s happened then the most important thing to say is ‘don’t panic’. You are not the first person this has happened to and there are options available.
You may be worried about what will happen to your IVA now you’ve been left without an income. You may wonder if your creditors can simply seize your pay-out and leave your family with nothing to live on. Redundancy can be a worrying time but just because you no longer have a job, it doesn’t mean your IVA has to fail. Our guide looks at what you can do in this situation.
Talk to your IP
As soon as you’re made aware by your employer that redundancy is on the cards, you need to talk to your insolvency practitioner. They will have seen situations like this before and can help form a plan – ignoring the problem will just give you less time to plan and negotiate.
If you have a decent pay-out
When you’ve been with a company for a long time you may get quite a large sum of money in severance. That’s cash your former employer intends to help you pay your way while you find another role or retrain, so it would feel a bit unfair if you had to give it all up as that might stop you being able to pay bills.
However, your creditors are also entitled to seek their money sooner if your circumstances change – and a windfall like a redundancy pay out definitely counts as a change.
Under the current rules, you’re allowed to keep six months’ worth of wages to help you look for employment and to allow you to keep making your IVA repayments. However, any money left over after that must be paid to your IVA creditors. If you get a job within the six months then, again, you need to pay any remaining funds to your creditors.
It may not feel like a particularly good deal to receive a large chunk of money and simply hand it over to creditors while your former colleagues splash a little cash before looking for work. However, it’s important to remember that your creditors agree to write off any remaining debt at the end of your agreement and in some cases this can be a considerable amount.
What if I don’t find work?
If you’ve received a decent pay-out but not found work after six months then you should talk to your IP about a payment break. That will allow your IVA to be put on hold to give you time to look for another job.
If you’ve not been with an employer long then you may not be entitled to much redundancy pay and that can be a real blow. However, that doesn’t mean financial disaster is looming – it is usually not in your creditors’ interests to force you into bankruptcy. If that happens during the term of your IVA then you could apply immediately for a payment break of up to half a year, to give you a chance to look for new work.
As soon as you find a new job, the payment break would end. However, if you are earning more or less than before then the agreement may need updating to make sure it is still affordable.
Proposing a full and final settlement
In some cases it might be possible to use your redundancy pay out to propose a full and final settlement of your debts to your creditors. You would need to talk to your IP about this option but if you receive a large amount that is enough to cover the majority of your debts, you could see if your creditors would be willing to settle the agreement earlier than originally planned. If you are out of work and are struggling to find replacement work or near retirement age creditors might see this as a preferable alternative.
Can my IVA fail?
Once an IVA is formalised it is legally binding and that can be a huge relief. Creditors who are included in the agreement cannot back out or pursue you for the cash as long as you are making regular payments.
Unfortunately, if you are made redundant and need to make a considerable amount of changes to your agreement – such as drastically reducing the amount you pay – you would have to request a variation to your IVA and creditors may disagree with your new proposal. If this was the case we can help talk you through other options. Your IP can grant you payment breaks without needing your creditors permission, so this may be the first step before looking at a variation.
Get in touch
Perhaps you’re reading this because you’re struggling with debt and worried about impending redundancy. Whatever the circumstances of your problem, we will have worked with similar cases and we can offer you highly informed, personalised advice.
Most importantly, the sooner you tackle problem debt the better. Contact us today so we can help you find a path out of debt.
*In the case of a one-off lump sum settlement