How much does an IVA leave you to live on?
GETTING on top of overwhelming debt can be a huge struggle, especially with a cost of living crisis looming in the background.
Some people could find entering an individual voluntary agreement (IVA) gives the help needed to get on top of their debts and money.
But an IVA should not be entered lightly. It is not suited to everyone in debt and you should do plenty of research before going ahead.
There are lots of free debt resources that can help give advice if you are battling with money.
What is an IVA?
An individual voluntary arrangement (IVA) is a formal agreement between you and those you owe money to, known as your creditors.
The arrangement sets out how you will pay back debts over a set period of time. It’s approved by the courts.
When an IVA is in place creditors should stop charging interest on debts, and chasing you to pay back money owed.
This can be a welcome relief for people who are feeling overwhelmed by their situation.
To uphold your side of the agreement you will usually need to make the payments set out and not take out any new credit without permission through the agreement.
An IVA will be set up by a qualified person known as an insolvency practitioner who charges fees.
You will also usually have to tell your IVA provider if income increases or if you get any other cash coming in.
Debts you can have in your IVA include gas and electricity arrears, council tax arrears, water arrears, payday loans, store cards, personal loans, credit cards, overdrafts, benefit overpayments, income tax and other outstanding bills.
You can’t include student loans, child support arrears, TV licence arrears and magistrates court fines in an IVA.
How much are the IVA monthly payments?
Monthly payments will depend on your individual circumstances but the important thing is they are manageable.
You could also agree to make lump sum payments or a combination of monthly and lump sum.
The details will be worked out with your insolvency practitioner with your creditors agreeing to it.
There are no minimum or maximum limits on debt in your IVA.
But the fees for an IVA can be high – around £5,000 on average, according to Citizens Advice.
It means that if you have smaller amounts of debt, there could be more suitable options for you.
Debt management companies are organisations that help to set up an IVA but it is usually a more expensive route than finding an insolvency practitioner yourself.
These companies charge a fee on top of the insolvency practitioner’s fee – you are in effect paying twice for the same service.
How much does an IVA leave you to live on?
Your insolvency practitioner will take a look at your debts and income to work out how much you can afford to pay.
The exact amount will depend on the plan you set up, how much money you owe and how much income you have coming in.
However, the agreement will be designed so that you have enough to live on each month, including money for food and transport and other essential costs.
You and the practitioner will both have to agree to the monthly payments to make sure they are manageable.
If you don’t think the payment will leave you with enough to live on, you need to raise this with your practitioner before agreeing to it.
Can my IVA payments be reduced?
The plan will usually last around five or six years – and your practitioner will review your situation each year.
You may be expected to pay more in certain circumstances, for example, if you get a pay rise at work.
However, if your financial situation has got worse, you can talk to your practitioner and they may be able to reduce your payments.
You should let your practitioner know as soon as possible if you’re struggling.
They could also arrange for you to make your payments later or pay nothing for a short time.
If the payments aren’t enough to fully repay your debts by the end of the IVA you won’t have to pay anymore.
In some cases, your practitioner may be able to settle the case early.
Other ways to get out of debt
There is lots of free debt advice available for people who are struggling.
These services can give an overview of the options available to you or just provide some tips on how to get in control.
Most of them can offer you free guidance and help in person, over the telephone or online.
- Citizens Advice – 0808 800 9060
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
They can also help you take the next steps if you need a debt management plan (DMP) to tackle your debt or an IVA.
The government-backed breathing space scheme is another way to take some time to get on top of debts.
If you qualify you can get 60 days where creditors can’t contact you or take action on your debts – interest and charges will also be frozen.
The scheme covers a wide range of debts including council tax arrears, personal tax debts and benefit overpayments, as well as credit cards and loans.
You can only apply for breathing space once in a 12-month period.
And during the breathing space period, you will need to work with professional advisers to get back on track with repayments.
You can find out more about who’s eligible and how to apply.
You could also consider asking your local council for help.
Authorities have funds to support those struggling and this can range from hardship funds offering cash in an emergency to vouchers for buying food.
What’s on offer depends on where you live and this may include debt advice too – you can check what your local authority is offering directly.
Millions of pounds in benefits go unclaimed.
Yet, money that you’re entitled to but not claiming could give you extra money that can be used to tackle debt – or even prevent you falling into debt in the first place.
There are many benefits out there, even for those in work.
Use a benefits checker tool to find out if you’re missing out.
They’re free and easy to use and can also show you the next steps of how to claim.