An Individual Voluntary Arrangement (IVA) is a popular debt solution for those struggling with unaffordable debt. It allows individuals to pay off their creditors in a manageable way, without the need for bankruptcy. However, IVA restrictions are imposed to ensure that creditors are repaid fairly and that the debtor adheres to their responsibilities.
Understanding the restrictions that come with debt solutions is vital to avoid any legal action or the failure of the arrangement.
What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between an individual and their creditors to repay all or part of their unsecured debts.
It is a formal insolvency solution available in the UK, designed to help individuals struggling with unaffordable debt to make manageable payments over a set period of time, usually 5-6 years.
The debtor proposes an affordable payment plan, and if accepted, the arrangement becomes legally binding for all creditors involved.
IVAs are supervised by a licensed Insolvency Practitioner who manages the debtor’s payments, liaises with creditors, and ensures that the arrangement is fair for all parties involved.
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What IVA restrictions will I be under during my debt solution?
Individuals under an IVA will be subject to certain restrictions during their debt solution. These restrictions are in place to ensure that the arrangement is successful and that creditors receive their agreed-upon payments. One of the most significant IVA restrictions is on spending.
The debtor is required to make regular monthly IVA payments, which are calculated based on their disposable income after reasonable living expenses have been accounted for.
The payments are distributed to creditors by the insolvency practitioner, who also charges a fee for their services.
Ongoing spending restrictions
During the IVA, individuals are also subject to ongoing spending restrictions. They are required to live within a budget and avoid unnecessary expenses.
The Insolvency Practitioner will assess the individual’s living expenses and may make adjustments if necessary. IVA spending restrictions will end when the payment term is completed, usually after five or six years.
Restrictions on bank account
Individuals under an IVA are also subject to restrictions on their bank account. They may be required to open a new bank account to prevent their creditors from seizing their funds.
In some cases, they may also be prohibited from applying for credit without the approval of their Insolvency Practitioner.
Individuals under an IVA are prohibited from taking on additional credit over the amount of £500 without the approval of their Insolvency Practitioner. This is to prevent them from taking on additional debt and potentially compromising the success of the IVA.
Once the IVA is successfully completed, individuals will typically need to rebuild their credit score from scratch.
Can I discuss my IVA with another Insolvency Practitioner?
There isn’t any law that prohibits you from discussing your IVA with anyone you wish, or taking debt advice from another party.
You would have to ask an Insolvency Practitioner (IP) directly if they would be willing to discuss this.
If you want additional information about the insolvency process you can contact the Insolvency Service enquiry line. But they cannot discuss information on specific insolvency cases. Alternatively, you can use their online tool to locate an Insolvency Practitioner.
Can I apply for a credit card while on an IVA?
Your IVA will contain clauses about the use of further credit during the term of the IVA and there may be a need to notify of the change of address.
At this stage it could be best to speak to the IP who is responsible for the supervision of your case and explaining what has happened.
Will my IVA company find out if I have a credit card?
It is probable that this will come to light and it may, or may not be, an issue the answer will depend on whether your IVA is already in place or is still in the proposal stage and the reason for the card.
If you contact your IVA company and let them know about the card, as you are required to do so, and provide evidence of use they will be able to advise whether this causes any issues or is just something that requires noting.
Failing to notify could cause your IVA to be rejected at the meeting of creditors, or to fail if your IVA is already in place.
Does my landlord need to provide proof of their income if I am on an IVA?
You are paying for a room in someone else’s house and there is no requirement for your landlord to provide proof of their personal income to your creditors although they will probably have to provide proof that you pay rent to them.
Even if your landlord is a family member, such as your brother or parent – They should not be required to provide proof of income to the IVA company.
If you contact your IP they will be able to put your mind at ease and let you know what information they will need.
Can I get a debit card while on an IVA?
There is nothing preventing you from getting a debit card and bank account. The challenge is finding one that will give you one. It’s been rumoured that the Co-op or Yorkshire Banks are sympathetic to people in IVA’s.
One important thing to note. You will not be able to have an overdraft or borrow money with an IVA.
Can I change bank accounts whilst in an IVA?
There is nothing stopping you changing your bank account. But just in case your credit file makes it difficult to open an alternative bank or building society account, don’t close the one you have.
Can I open a business bank account?
You need to speak to your IVA supervisor prior to applying for further credit as it depends on the specific details of your IVA as to whether you are allowed to do so or not.
If you are entitled within your IVA to apply for further credit you need to be aware that IVAs are a matter of public record so your application for credit could be affected if a creditor chooses not to lend to you.
Here’s an example of how we can help
Let’s say you owe..
Short Term Loans
Total amount owed:
After an IVA
Example case completed in 2023. Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.
What happens if my financial situation changes after my IVA proposal is approved?
If your financial situation changes after your IVA proposal is approved, it’s essential to notify your Insolvency Practitioner immediately.
If you experience a significant change in circumstances, such as a job loss, a pay cut, or an unexpected expense, your monthly payments into the IVA may need to be adjusted to reflect your new income or expenditure.
Your Insolvency Practitioner will review your situation and, if necessary, propose a variation to your IVA to adjust the payment plan accordingly. The variation will need to be approved by your creditors, and if they agree, the IVA will be amended accordingly.
What happens if you inherit money while in an IVA?
If you inherit money while in an IVA, you will likely be required to notify your Insolvency Practitioner immediately. This is because any windfall or lump sum payment that you receive could be subject to the IVA’s windfall clause.
The windfall clause is a standard provision in most IVAs that requires any unexpected income, such as an inheritance, to be paid into the IVA to increase the payments to creditors. This clause ensures that the debtor’s creditors receive a fair share of any additional income received during the IVA term.
Your Insolvency Practitioner will review your inheritance and determine whether the windfall clause applies. If it does, they will calculate the amount that you need to pay into the IVA, and you will be required to make a lump sum payment.
Failure to pay the required amount could result in the IVA being terminated, and you may be at risk of further legal action from your creditors.
What happens to my IVA if I get pregnant and don’t work?
Your IP would need to communicate your change of circumstances to your creditors and organise a payment holiday for you. Any missed payments would be added on to the end of the arrangement.
If you needed to take a long period of time off a variation of your IVA may need to be proposed, and variations are not always accepted. For more information take a look at our article on IVA and employment restrictions.
Can I move abroad or go on holiday during my IVA?
It would be advisable for you to contact your IP and discuss this directly with them.
Going on a holiday does not exclude you from being able to enter into an IVA in principle. However, as an IVA is a voluntary agreement your creditors are not forced to accept the arrangement.
This means that if the creditors discovered that you went on holiday with money that could have been used to pay some of your debts they could, in theory, reject a proposal.
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Can I get a mobile phone contract with an IVA?
There is nothing to say that you cannot take a mobile phone contract during your IVA, although you may need to think carefully about the cost of this and whether it will impact your ability to make payments to your IVA.
Mobile phone contracts are usually subject to a search of your credit reference agency files and each individual supplier may have different views about who to allow a contract based on credit history.
You could call a few on their customer care lines and ask the question before making an application.
Can an IVA take my pension?
This would be treated as a windfall if you decided to draw it, which means that it would be included in the IVA.
However, you would not normally be expected to release a pension payment unless there’s an explicit stipulation contained within your IVA agreement stating you must do so. You need to get advice from your IP before you do anything.