What to do if your situation changes during an IVA
When you set up an individual voluntary arrangement, or IVA, you will have an agreed sum that you are obliged to pay each month to an insolvency practitioner, or IP.
The IP then distributes the cash among the creditors to whom you owe money, often taking a portion for themselves as a fee.
This then goes on for the duration of the arrangement or until your debts are paid off.
But what happens if you financial situation changes once the IVA has been set up?
We’ll explain exactly what you should do if your salary increases or if you find yourself unable to continue making payments of the agreed sum each month.
Salary Increases and Full Disclosure
If your income increases at any point during the course of your IVA, it is crucial that you inform your insolvency practitioner.
All of this applies whether you receive a raise in salary, a new better paid job or if you receive a lump sum of cash, say, through inheritance.
Indeed you are obligated to inform your IP of any of the following changes to your personal situation during the course of your IVA:
- Moving house
- Changes in your employment situation
- Changes in your level of disposable income
- Changes in your level of raw income
- Any financial problems that result from further loans being taken out
The likelihood is that any boost in income that you do receive will mean that you are required to increase your monthly payments towards the debts managed as part of the IVA. This will, however, depend on the nature of your agreement, from the length of the initially agreed term to the size of the debt to be tackled.
It will be made clear in your initial IVA agreement that you need to keep your IP informed regarding any changes in your financial situation.
At the end of each year, your insolvency practitioner will conduct an evaluation of your finances and so any extra income that you do try to keep hidden will be revealed at this point anyway.
It’s important that you do keep your IP fully informed as failure to sufficiently inform the relevant parties may well result in termination of the IVA altogether. Not only this but by breaching the terms of your IVA you could be breaking the law and may face penalties from the courts if caught out.
Commission and Bonuses
Protocol introduced in July 2012 means that any IVAs started after this date come with a condition that requires the debtor to inform their IP of commission or bonuses they receive at work within 14 days of receipt of the money.
Often, if you’ve taken out an IVA with such a condition, you’ll only need to make the IP aware of bonuses or commission worth 10% or more of your income. You will have to pay 50% of anything over the 10% threshold if this is the case.
So if your basic income is £50,000 and you receive a bonus of £7,000, then you should get to keep £5,000 of it (10% of £50,000), and then put £1,000 towards your IVA payments (50% of the remaining £2,000).
Some IVAs come with what is known as a windfall clause. This means that you are contractually obliged to make extra contributions towards your IVA payments if you receive sums of cash through, for example, inheritance or lottery winnings.
For more on exactly what kind of unexpected income falls under the remit of a windfall clause, and to find out whether or not your IVA comes with one, you should carefully check your original documentation or contact your IP.
What if I can no longer make payments?
On the other side of the coin, if for any reason you find yourself no longer to make the agreed payments each month, you have a couple of options available.
As with increases in income, you should always immediately alert your IP if you find yourself unable to keep up with your monthly payments. Exactly what course of action you can then take will depend in part on the reason behind your failure to pay.
You may be able to temporarily reduce your monthly payments until you are able to once again pay the initially agreed sum. This can be the case if your income reduces or stops due to circumstances out of your control, if you’re made redundant for example.
If this is not an option then you should consider terminating the IVA altogether to avoid getting into further financial trouble and maybe trying another form of insolvency such as declaring bankruptcy.