Have you looked at the available debt solutions to you? Do you think that an Individual Voluntary Arrangement (IVA) is the right choice to deal with your financial circumstances? If so, you must understand every aspect of an IVA that would likely impact you considerably.
You will learn about various aspects of an IVA. Out of all the IVA matters, one thing you must know about is how an IVA stop or restricts you. Simply put, when you enter into an IVA and your debt repayment plan is constructed, several IVA restrictions will be in place. This IVA restriction is not meant to burden the debtor but simply help them pay off their debts faster. That is why IVA advice is necessary.
Many restrictions in an IVA relate to your spending. This way, the IVA stops you from making unwanted expenses. Since you have applied for an IVA, it would help to know what you can or cannot do in an IVA. With that in mind, here are the IVA restrictions you should be aware o if you want your IVA to be successful. But first, off we should understand What is IVA? And even though with all the restrictions why IVA is the best option to pay your debt.
What defines IVA?
Individual Voluntary Agreements (IVAs)
An Individual Voluntary Arrangement (IVA) is a contract between you and your creditors to pay off all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will distribute the funds to your creditors.
Individual Voluntary Arrangements (IVAs) are a UK debt solution for people who are having difficulty repaying their unsecured debts.
An IVA is a formal agreement entered into between you and the people to whom you owe money (your creditors). This agreement allows you to repay a small portion of your total debt through regular monthly payments in proper and organized method for stepchange way. We calculate repayments based on what you can afford in light of your employment status and living expenses, rather than the original terms of your credit agreements.
IVAs are used by thousands of people to consolidate debts such as store cards, overdrafts, national insurance arrears, credit cards, payday loans, and many others.
Certain debts are included and excluded by IVA.
To understand the restrictions properly, you must be aware of what is included as well. Through this, you will obtain complete information about what you should expect from IVA if you decide to take it.
Rent, mortgages, and secured loans
Secured loans are debts that are collateralized by your home. This means that if you are unable to repay the debt, they may repossess your home. Secured loans, mortgages, and rent arrears can all be included in an IVA. Your creditor, on the other hand, will have to give their permission for it to be included, which they are unlikely to do.
Debt amount that can be included
An IVA can include any amount of debt. The law establishes no minimum or maximum limits. An IVA has high fees, so if your total debt is less than £10,000, an IVA may not be the best option. Learn more about other debt-relief options.
The number of debts that can be included
Any number of debts can be included, but an IVA is usually preferable if you have more than one creditor.
IVAs are adaptable. If you decide that an IVA is the best option for you, your insolvency practitioner will advise you on whether your debts are eligible for an IVA.
Debts that you cannot include
The following debts are not eligible for inclusion in an IVA:
- arrears in maintenance that have been ordered by a court
- arrears in child support
- loans for students
- fines imposed by magistrates’ courts
- Loans from the Social Fund
- Arrears on TV license
With clear information about what is included and what is excluded from the IVA, a better picture can be made and help to understand what is to be done relatively about the debt we possess. By understanding the IVA you can get the right full
IVA stops you from obtaining further credit
Yes, it is fitting that an IVA stops you from obtaining further credit since it would only add to your list of debts. However, this restriction on credit accessibility while on an IVA is not wholly restricted. You can apply for credit within the permissible limit of an IVA. Whether you wish to apply for credit or loan within the permissible credit limit or higher than the allowable amount, you must take prior permission from your Insolvency Practitioner.
Since applying for additional credit while on an IVA is a sensitive matter, you should not forget to get IVA advice from the IP first. As you are already making IVA payments per the IVA debt repayment plan, the IP will analyze your finances again. Then the IP will tell if you can apply for additional credit or not. In such a situation, good debt advice, would likely suggest not adding more loans while your IVA is active.
So, IVA stops you from applying for further credit during its tenure.
Would you be able to obtain credit without an IVA?
Although an IVA prevents you from obtaining additional credit, it is important to consider whether you would have been able to obtain credit in the first place.
Lenders will review your credit file when you apply for a loan, and if you are having difficulty making payments, defaults may already be on your credit file. An IVA shows that, even if you’ve had difficulty repaying creditors in the past, you’re taking action to address your debts.
Some lenders may look more favorably on a completed IVA than a credit report that contains several financial products that have been defaulted on and you are struggling to pay. As a result, an IVA may place you in a better financial position in the future.
Is it possible to get credit after an IVA?
When your IVA get complete successfully, you will be given a certificate of completion. Within three months, your information should be removed from the Insolvency Register, and credit reference agencies should automatically update your credit file to reflect that the IVA has been completed. If your IVA was for more than five years, it will remain on your credit file for an additional 12 months. It is always a good idea to double-check your file to ensure that everything is correct.
You can also ask for a note to add to your file explaining why you became insolvent and need to file an IVA, such as redundancy or illness.
You can begin working on improving your credit score. It may still be difficult to obtain favorable credit terms at first, but making timely payments and staying within credit limits should improve your credit score.
As a result, once the IVA expires, there should be nothing stopping you from applying for credit.
IVA restricts your budget limit
You must make monthly payments to cover your debts if you are in an IVA. This is the money you have leftover after meeting your reasonable monthly expenses. Your living expenses should not be in limit while repaying your debts through an IVA debt repayment plan.
Creditors will also agree to your IVA debt repayment offer only if they believe you can live your life normally. As a result of an IVA, your budget becomes constrained. The Insolvency Practitioner at Debt Movement will make certain that your monthly IVA payments are never more than you can afford.
They will work with you to determine your income and expenses, so include everything. After paying your bills and essential expenses, your monthly payment will be the amount of money left over.
The IP will assist you in developing a realistic budget plan by assessing your typical expenses and income, as well as how much you should put towards debt. If you are able to create a budget, seek IVA advice first. Budget restraint during an IVA is not a bad thing. IVA protects you from having to make unfavorable financial decisions. It is done so that you do not find yourself in a situation where you can only pay the IVA repayments and do not have enough money to cover your basic living expenses.
This means that every penny will on count, and you will get limits on spending only on necessities. You simply cannot afford to waste money on frivolous or unnecessary purchases. This budget will be in effect throughout the duration of your IVA.
What Happens If You Exceed Your Spending Limits?
If you start missing IVA payments, your Insolvency Practitioner will first ask to review your income and expenditure to see if your budget is still affordable to you. They may also request bank statements to ensure that your spending is within limits and that you are not spending on luxury or unnecessary items.
If you are unable to stick to your budget, it is critical to determine whether it is realistic. If your budget appears to be manageable, your Insolvency Practitioner will expect you to continue making payments into your IVA. Keep in mind that creditors have set guidelines for certain types of expenditure.
Windfall clause in an IVA
Different people have different views on including the windfall clause in an IVA. Windfall is when your finances improve due to receiving inheritance money, tax returns, lottery wins, security benefits, etc., while in an IVA. As and when the IP reviews your IVA and finds that your income has increased, the windfall clause in the IVA will become valid.
So, if you have windfall cash at hand, you would inform the IP of it and seek IVA advice on what you can do with that money. The IP will sort out the best way to utilize the windfall cash with that information. If in excess, the IP may decide to change the minimum IVA repayments with consent from the creditors. The IVA stops you from unwanted spending as the windfall clause becomes effective.
IVA stops you from earning excess income
If you applied for an IVA, you would know that more income means higher monthly debt repayments. However, the IP will decide on your additional income threshold once the creditors and the court accept your IVA. This monthly income threshold is to stop you from earning excess money that is not for debt repayments. Even though IVA prevents you from earning more. The threshold limit is 10% more than the income stated in the IVA proposal.
So if you are earning additional income now. Its limit should not be more than 10% of the listed monthly income value in the IVA proposal. You are free to use this money however you want. A debt advisor would suggest you save those excess incomes as emergency funds. Or, if you wish to, you can simply pay off your debts in one go.
You can never be definite about how many emergency expenses you should consider. When the IP works out the debt repayment plan, they help you draft a realistic budget. And make additional provisions for emergency expenses. These emergency spending could be home repairs or car repairs. So, even if IVA stops you from overspending, there are provisions for healthy management of your finances and needs.
If the IP did not set an additional emergency spending limit, you should get essential IVA advice. If you are unable to make your monthly IVA repayments due to an emergency, your IVA will be in effect.
Knowing the various benefits and drawbacks of an IVA would help you understand the different restrictions you may face when in an IVA. But still, these restrictions are made to make your financial experience better and help you to pay your debt fast and effectively. While such restrictions are not necessarily pitfalls, it is worth learning about them. Hence, IVA advice is crucial to facilitate your debt repayment plan and the success of your IVA