MANAGING A SELF-EMPLOYED IVA
An IVA is a legally binding agreement between you and your creditors. Over the next five years or so, you will make affordable payments to your creditors on a regular basis.
During this time, you are protected from your creditors taking action against you as long as you stick to the arrangement and make regular payments. Once your IVA has been successfully completed, your creditors will agree to write off the outstanding balance of your unsecured debt.
How does my budget work?
For your IVA to be successful, you will need to repay what you can afford based on a budget created by your Insolvency Practitioner (IP) and agreed to by your creditors.
Your budget can be broken down into:
- Regular payments (including your rent or mortgage, council tax, childcare, utility bills and your IVA payment)
- Day to day expenses (things like groceries, petrol/diesel, toiletries)
- One-off costs and emergencies (MOT, repairs)
You can help your arrangement by sticking to a budget and trying to maximise your available money. You could check to see if you can switch your utility, phone, TV and broadband providers, for example, and see if you could reduce your monthly outgoings.
Your main aim is to keep making payments for the duration of your IVA, so it’s important to stay in touch with your IP, especially if your circumstances change.
You’ll also need to make your IP aware of any extra money that comes your way, such as windfalls or inheritance.
Three tips to help you successfully manage your IVA:
- Organise your paperwork so that you know where everything is
- Keep an eye on your budget to control your spending
- Stay in touch with your IP, especially if anything changes in your life
What to expect during your IVA
Your IVA will usually last between five and six years. Your arrangement can also end earlier than that if you are in a position to make a lump sum payment.
During this time, you’ll need to stick to the terms of your IVA. You can expect your arrangement to affect your:
- Spending. Live according to your budget, remembering that some of the additional income you earn and/or any financial windfalls must go towards repaying your debts.
- Credit score. Your IVA will be held on your credit file for six years from the date the arrangement began. Although an IVA has a negative impact on your credit score in the short term, this may improve afterwards as you’ll have taken steps to improve your financial situation.
- Possessions and assets. You may have to sell valuable items (such as jewellery) to repay your debts. If you need your car for work, you may have to swap it for a cheaper model if it’s worth over £5,000, and if there’s equity in your home, you may be asked to remortgage.
- Work. Your job isn’t usually affected unless you’re in professions like financial services, law or accountancy. Check with your IP if you’re unsure.
Here’s an idea of the IVA journey:
* Following your application and a meeting with your IP, your proposal will be presented to your creditors and will be approved as long as at least 75% (by value) of the voting creditors agree.
* Usually within two to three weeks, you’ll have confirmation whether your creditors have accepted your IVA. In most cases they do accept your IVA. If they accept your IVA, you’ll be protected from creditors taking legal action to chase you for your debts.
* If the proposal is not approved or you change your mind, then our team can help you find another way to deal with your debts.
* After the first twelve months, your IP will review the progress of your IVA with you and check whether you have had any change in circumstances that affect your payments. This type of review will happen every twelve months. You and your creditors will also receive an annual report as a record of how your IVA has been running.
* Shortly before it comes to an end, we will review your arrangement to make sure you’re on track to complete your IVA on the expected date.
* After 60 months, (this could be longer in certain cases), your final payments will be made to your creditors and your IP will confirm that your arrangement has been successful. You will then receive an IVA completion certificate to confirm that your IVA has finished and your debts have been cleared.
You won’t need to notify your creditors.
Helping your IVA run smoothly
For your plan to progress smoothly, keeping up regular payments is very important. Should you have to miss a payment for any reason, let your IP know.
Sometimes things can go wrong, unexpectedly. You may be able to take a payment break for a short-term emergency like a car or boiler repair. If the changes are long-term, your IP may need to speak to your creditors to arrange a variation of your IVA payment.
For a clear idea of what your IVA will involve (and to dispel the myths around them!), take a look at our useful blog. You might also find it helpful to find out about other people’s experiences of clients who’ve been in IVAs with us.
Can I go on holiday while I’m in an IVA?
You can still go away or see friends and family as long as you can afford to do so within your budget. There’s no small print within an IVA that stops you from going on holiday. It’s worth nothing that if your holiday is paid for by someone else, friend or family, there shouldn’t be a problem.
However, borrowing money to go on holiday isn’t advisable.
This is because taking out extra credit, an overdraft or a loan on an IVA may breach the terms of your arrangement. You can’t borrow more than £500 from any lender without permission from your IP. This may rule out a big overseas holiday – remember that your IVA will be over after a fixed time and you’ll be in a stronger position afterwards.
Some of our clients in IVAs planned a family holiday for when their arrangement came to an end. Not having to pay into their IVA means they had disposable income available.
Can an IVA fail?
Your IVA might fail if:
- You regularly miss payments and fail to keep your IP informed.
- You take out credit of more than £500 during your IVA without permission.
- You didn’t disclose all your assets when you first applied
- You fail to pay in additional income or declare a windfall
Should your IVA fail, at whatever stage, you won’t be required to make any further payments to pay any IVA fees – you will just be left with the remainder of the debt owed to your creditors. Our friendly team can help you decide the next best option for you:
- Set up a DMP (Debt Management Plan) – a DMP doesn’t guarantee your interest rates or charges are frozen, but it does allow you to pay a reduced monthly amount to your creditors. If you stick closely to your agreement, you could potentially persuade your creditors to agree to another IVA with you in the future.
- Petition for bankruptcy – declaring yourself bankrupt allows you to write your debts off, but you’ll need to sell your assets as a way of raising money to repay your creditors. This may include your home and car, and if you can afford to, you’ll need to make monthly payments into the bankruptcy for up to three years.
Can I come out of an IVA?
You can write to your IP to ask for your IVA to be terminated. If you do this, your creditors might back date interest and charges and add this to your balance. Your credit file will still be affected for six years.
If you feel this isn’t the right arrangement and are struggling to make payments, please speak to your IP straight away. There may be other options available:
- Debt Relief Order
Find out more about ending your IVA.
Can I include council tax debts in my IVA?
Yes, your council tax debt can be included in your IVA – so any arrears will be covered as long as you’re keeping up payments.
By including council tax arrears in your IVA, it will stop local authorities sending in bailiffs, setting up an attachment of earnings, issuing a charging order or petitioning for your bankruptcy for the arrears.
What if I have an emergency?
You can take a short payment break from your IVA if you have an emergency and you need to pay money towards it. You may also be able to alter your monthly payments with the agreement of your supervisor if the change is small.
Make your IP aware of any problems or emergencies you’re facing as your arrangement will allow for some flexibility, depending on the circumstances. These might include:
- Losing your job
- Health issues
- Relationship changes including separation/divorce
- Unforeseeable expenses like boiler breakdown/car repairs
Don’t take out extra credit to cover situations like this, as this could affect your IVA, especially if you’re looking at costs of more than £500. Let your IP know what’s happened. Their role is to support you during your arrangement so give them a call or get in touch if you have any questions at all about managing your IVA.