Individual Voluntary Arrangements - Bank Accounts and Pensions
IVAs (Individual Voluntary Arrangements) can be a way in which to make your debt more manageable. They work by coming to an agreement with your creditor that lengthens the term over which you can pay back your debts. They also allow you to reduce your monthly payments into sums that are more appropriate for your budget.
All of this information may make an IVA sound like an appealing option to help you with your debt problems, however there are a series of pitfalls and risks that are very much associated with this course of action. In this guide we will look at exactly what kind of an effect an individual voluntary arrangement could have on your bank accounts and pension.
In this guide:
Impact On Bank Accounts
If you know that you are going to be setting up an IVA, there are some things that you may have to change with regards to your bank account. The reason that you need to make these alterations is that you need prevent your bank from being able to automatically take your money for repayment. The bank is legally permitted to do this if your account is directly associated with your lenders - this is called the right to offset.
If it is the case that your lenders and your bank are linked, or are indeed one and the same, you need to make sure that you have moved your money away from this account to one that cannot be reached. If you have already secured the services of an insolvency practitioner, you should speak with them prior to setting up your IVA about which bank accounts are accessible to lenders.
You should also be aware that you will normally need to use money from your savings accounts to make a contribution towards your IVA's monthly repayments or to make a lump payment to your creditors.
Impact On State Pensions
Your state pension will be taken into account by your insolvency practitioner when they are deciding upon a proposal to take before your creditors and will be viewed as a contributor towards the amount that you can afford to repay.
Impact On Personal and Work Pensions
If your work pension or personal pension is currently paying out, you will be required to use this towards making your repayments. This means that your insolvency practitioner will take it into account when deciding what type of a proposal to make to your creditors. You will also be required to use part of any lump sum payments you receive.
If you are at a stage where you are still depositing into your pension, you may be obliged to cease doing this if your creditors request you to. This is because they may want to use that income to ask you for larger monthly repayments. This arrangement will normally last around 5 years however there is a chance to avoid this if you manage to convince them that it is vital to your future wellbeing.