An Individual Voluntary Arrangement (IVA) is a good solution for people struggling with debt and who need an affordable monthly payment plan to get them out of debt.
However, as an IVA is a legally binding contract, it is essential to consider when signing up for one that you adhere to the strict rules attached to the agreement.
Your IVA will require you to be disciplined with your spending as your monthly payment plan relies heavily on your budget. But how far can you push your spending whilst you are in an IVA? Are there limits on what you can spend your money on?
In this guide, we will explore all those questions and offer you our top 5 tips on keeping to the terms of your IVA agreement.
Please find out more about Individual Voluntary Arrangements (IVA) in our detailed guide.
Let’s talk IVAs and budgets
Before discussing what an IVA will stop or restrict you from doing, let’s discuss how vital your budget is to your IVA agreement.
Your insolvency practitioner (IP) will go through your income and expenditure when you take out an IVA. Your IP will agree with you on your monthly payments based on how much you can afford in the meeting.
Your monthly payments will consist of the disposable income after you have taken away your essential expenses. This is, however, the part that people struggle with. The actual expenditure versus the luxury part.
In the past, you might have considered an expensive car or gadgets as an essential living expenditure; however, in an IVA, these are classed as luxury and are the expenses your IP will tell you to put a hold on until your agreement end date.
Sometimes, it is hard to follow such a strict budget, mainly when you haven’t been used to it in the past. However, it does not mean you can’t spend on high-value items; you would just need to get it authorised by your IP.
Don’t have a budget in place? Download our free budget planner and stay ahead of the money game.
Will an IVA stop me from going on holiday?
Everyone needs a holiday, especially now that restrictions from Covid have been lifted for international travel. 2 years is a long time without a holiday, so it might be possible that whilst you are in your agreement to go on holiday.
To get a holiday approved by your Practitioner, you will need to:
- Work within your budget
- A trip costing a few thousand might not be acceptable within your budget; however, a few hundred pounds could allow you to have a lovely holiday but keep within your budget.
- Don’t ask for holiday authorisation straightaway
- Funding a holiday immediately after getting approved can sound tempting; however, don’t ask for it straight after getting your IVA.
- Put a little aside each month and make regular payments to show your IP that you are committed to paying off your debt.
- Save and use your additional income threshold
- Putting a little aside each month could help fund your holiday. You might be thinking this could be difficult, especially as your disposable income is tight.
However, a clever way to do this would be through your additional income threshold. This is what you can earn without having to pay for your IVA. It is generally 10% higher than the income you have proposed in your IVA. Additional income can include overtime work or extra shifts in employment.
Find out if an IVA is right for you.
Will an IVA stop me from borrowing money?
Borrowing money can be tempting, especially as you might want to make a luxury purchase or go on holiday, but you must never borrow money if you need money for this.
As you are already budgeting to make your IVA debt repayments, taking out credit or a loan can jeopardise the terms of your IVA agreement. Resist doing this, or you could get yourself into trouble with your IP.
Find out how to get help with secured loan debt.
Will an IVA stop me from getting a car?
Nothing stops you from buying a car, especially if you need it for work or family duties.
However, the issue will arise in terms of financing the car. You aren’t usually allowed to take out credit without the permission of the IVA supervisor.
You could ask your IP if you can get a car on Hire Purchase (HP), but you will need to make a strong case for it and budget the vehicle into your expenditure.
A section in the IVA proposal states that you can’t take any further credit, which is more than £500, without approval from your IP, but your Practitioner could look at your reasons for wanting the vehicle. They need to make ensure that it won’t adversely affect the creditors who receive your monthly payments.
If the reason is that you need it for a promotion at work and it will increase your income, then this can work in the creditors’ favour as they will receive the money-back quicker. Speak to your Insolvency Practitioner for guidance on this.
Find out how to get help with logbook loan debt.
Will an IVA stop me from renting a new property?
You may be able to rent a property when you have an IVA in place, but it does make it difficult.
This is because an IVA is recorded on your credit file, which can severely impact your credit rating.
A landlord could do a credit check on you and find that you are on an IVA agreement which could deter them from letting you rent their property.
However, there are ways around this:
- You could choose to rent with another person
- Get someone to be your guarantor. This person will be the one who will be responsible for your rental payments if you fail to make them. Often friends or family members could help you out.
- Talk to your landlord and let them know beforehand that you have a payment agreement in place but are trying to change your life to get out of debt. Landlords are humans, and they might be sympathetic to your situation.
Find out how to get help with rent debt or mortgage debt.
Will an IVA stop me from making pension contributions?
The good news is that any money that has been paid into a pension is not available to your creditors.
If you are paying regular payments into your pension from your wages each month, your creditors may ask you to stop during the term of your IVA so that you can concentrate on paying your debt back to them.
If you highlight the need to pay into the pension and the amount is not unreasonably high, then the creditors are likely to agree. The only negative will be that this will eat into your disposable income, making it longer for you to pay your creditors back. However, creditors understand that ensuring you are comfortable when you are older is also essential.
Want to know what happens to the inherited debt? Find out more.
Will an IVA stop me from spending money from an inheritance or lottery win (windfall)?
A windfall is a lump sum payment which you receive unexpectedly. This could be a lottery win, inheritance, accident payout or redundancy pay.
It would help if you told your Insolvency Practitioner of your windfall so they can explore the options for you. If the windfall is significant because of an inheritance or lottery win, your IP will simply ask you to pay the debt off in full (including fees, etc.…).
However, suppose you received the money because of redundancy and making a lump sum payment could affect your income. In that case, your insolvency practitioner may ask you not to pay into your IVA until you have a reasonable enough income to sustain the payments.
Will an IVA stop me from getting a phone contract?
As we are heavily reliant on our mobile phones, nothing stops you from getting a mobile phone contract.
However, most phone contracts are subject to credit searches, and as an IVA causes a negative mark on your credit rating, mobile phone providers may be reluctant to give you a contract.
It might be best to shop as every company has its own lending rules. Make a general enquiry first before you commit yourself to a provider.
How can I manage my IVA successfully?
An IVA comprises a legal contract between you and your creditors, so it is important to do everything to stick to your IVA contract rules.
IVA often fail when people don’t stick to their agreement and don’t follow the rules attached to an IVA. It is essential to speak to your Insolvency Practitioner if you are in doubt about anything; however, here are some general tips on helping you to keep track of your agreement.
Tip 1 – Live within your budget
The last section of your IVA proposal will include your proposed budget. Your budget will consist of your income plus your expenditure, which will show your disposable income.
A budget can be a real eye-opener for many people, as for most people, this will be the first time they will have had to stick to a budget without relying on credit.
However, most people who start life with an IVA find it challenging to stick to the budget as it can be pretty restrictive on their spending. This is the part where IVAs fail, or people miss payments.
However, to keep yourself afloat, you must kick out the old habits and become very disciplined with your spending.
Find out more about how to reduce your monthly food shopping bill.
Tip 2 – Disclose changes to your income
Life can sometimes take a turn for the worst, leaving you with a loss of income.
Suppose your financial circumstances change due to a job loss, reduced wages or salary or an accident. In that case, you must advise your IP of any changes to your financial circumstances, as they might be able to change your payments accordingly.
However, if you have an increased income or a windfall, it might be tempting to keep the extra income to yourself as it feels like it is deserved. Still, it is essential to remember the rules for your 10% threshold for additional income when it comes to an IVA.
Remember, you can keep your extra income under the 10% threshold, but if anything is over, you will have to inform your Insolvency Practitioner.
Tip 3 – Be transparent with your Insolvency Practitioner
It is essential to keep in constant communication with your Insolvency Practitioner. You will need to talk to them if you’re having trouble with your budget or payment plan. Also, if you have any concerns or questions, you can speak to your IP about this.
People often feel like the IP is not working in their best interests, especially when all the budgeting restrictions are being placed on them. However, remember that they are there to facilitate and ensure your IVA is a success, so work with them, not against them.
Tip 4 – Keep up with your monthly payments
We can’t stress this enough. Keeping up with your monthly payments for several years might sound daunting, but try to look at the positive aspect.
At first, paying that one monthly payment might feel like a financial burden, but IVA customers tend to get used to it. They often find that it is much easier to manage one payment than numerous ones.
Tip 5 – Get debt help and advice
Get help with you are struggling with debt. You are not alone. There are plenty of debt solutions to suit your needs. Please take a look at our debt plan pages for more information.
Also, if you need debt help, our debt help information pages are handy to get you started on your debt recovery journey.
