Living for an IVA

When making any financial decisions, it’s important to weigh up how they could affect your day-to-day life. An Individual Voluntary Arrangement (IVA) can help many people manage and repay different types of debt, allowing you to take back control over your finances. However, some may need to make alterations to the way they live their life while the IVA is in place.

From your home and family life to your career and future finances, you should take the time to consider the ways it could potentially impact you before deciding if it’s the most suitable debt solution for your circumstances.

In most cases, nothing should change with your current living situation, regardless of whether you’re renting or paying off a mortgage. If you don’t plan on moving while your IVA is active, you can simply focus on keeping up with your payments as normal.

However, there are a few scenarios in which you might need to take action, including:

Unfortunately, those with an IVA are unlikely to be accepted for a new mortgage. As with all formal debt solutions, IVAs are listed on your credit file for six years and will temporarily lower your credit rating. This, alongside being unable to take out any new credit over £500 during the IVA without written permission from your Insolvency Practitioner (IP), can make it especially difficult to secure a mortgage.

If you’re looking to secure your first mortgage, your best chance is waiting six years for your IVA to complete and your file to be cleared. While some specialist lenders may consider you before this point, it’s worth noting that you aren’t guaranteed to gain access to the best rates on the market until your credit score improves, since this is the best way to prove to lenders that you’re a trustworthy candidate.

In most cases, you should be able to enter a new rent agreement with an active IVA without any issues. However, some landlords might run a credit check on you to help them assess your affordability which could make them aware of your IVA. They won’t do this without your permission, though, so you can choose to let them know about it beforehand.

For the majority, entering into an IVA will have no impact on your current job. But regardless of the industry you work in or your position within a company, it’s always worth checking your employment contract for any policies or clauses stating that you must disclose your IVA. Typically, this type of clause will only exist for roles that could be affected by having an IVA. Those in industries or roles fitting into the following categories may be affected:

• Police, prison or fire services
• Legal sector
• Positions of financial responsibility
• Charity trustee

If your current role sits within any of the above, it’s best to let your employer know that you’re considering entering into an IVA to find out how you might be affected. This will vary on a case-by-case basis, although it can be good to know that there are other debt solutions available that may be more suitable for those who find themselves in these situations.

In the unlikely event that you lose your job as a result of your IVA, you can take advantage of the flexibility offered by this type of formal debt solution. You can choose to request a payment break of up to nine months or ask your creditors to suspend your monthly IVA until your financial situation improves. This can give you the time you need to seek advice and find another suitable job role.

Those registered as self-employed should be able to continue operating their business as usual. However, you should be mindful that ongoing credit may become an issue with certain suppliers because of your lower credit rating.

If you’re searching for a new job, you may be asked to declare any insolvency at the application or interview stage, which can include IVAs. This will normally only be the case when you’re applying for roles in the police, fire service, prison service, or legal sector, or if you would be in a position of financial responsibility.

Outside of these professions, you should have no problems applying for and securing a new role.

Unless your partner is also entering into an IVA or you have joint debts that will be included, your partner is unlikely to be affected by your arrangement.

For couples with multiple joint debts, you might both decide to enter an IVA since this allows your household to make one affordable payment to all creditors each month. While these would be separate arrangements and must be accepted individually, they would work together towards clearing the same debt.

Joint debts can also be included in your IVA even if your partner isn’t setting up their own IVA. In this scenario, your partner simply needs to continue making their repayments as normal. Your portion of the debt will be accounted for within your monthly IVA payments instead.

Any joint savings could be affected since this would be viewed as a lump sum that could be used to pay off a portion of your debts. During your IVA assessment, they will usually try to determine the amount of money you have contributed to these savings and decide whether this could be used. You should be aware that if contributions aren’t clear, it could be assumed that half of the savings are yours and this money could be used for paying a lump sum.

If you have any other joint credit with somebody you live with, they should be made aware that your portion would be paid for through your IVA and that they must continue making their repayments towards it as normal.

Otherwise, anybody else you live with should be unaffected by your insolvency.

If you currently own a car, it will be viewed as an asset that could be sold as part of your IVA to pay your creditors. Your IP will discuss this with you based on the value of your car and assess if this would work in your personal circumstances. Ultimately, it’s up to you whether you’d like to sell or keep your car, although your IP may strongly suggest selling if your car is worth a lot of money.

You are entitled to keep your car and exclude it from the IVA. You should bear in mind that if you don’t want to include assets, such as cars, in your IVA proposal, but your IP is doubtful that your creditors will agree to exclude it, they won’t send the proposal. [Source: Citizens Advice]

Your current car finance can be included as a debt in your IVA, which means that as long as you and the creditor agree to the arrangement, you can keep your vehicle.

You may struggle to purchase a car on finance with an IVA, although it can be possible. For instance, if you need to replace your current car, your PCP period is ending and needs to be renewed so that you can still have access to a vehicle, or you don’t currently own a car but now require one for whatever reason, you may be able to make a case to your IP for borrowing over £500.

However, as with opening any other new lines of credit, your finance application may be at a higher risk of being rejected by many creditors.

IVAs stay on your credit file for six years from the date that they’re approved and can lower your credit score during this time. Regardless of whether you finish the IVA early or need to extend the IVA to clear your debts, it will remain on your credit file throughout the entire duration.

Your creditors may also record a default on your credit file, which will only be removed after six years from the date it was registered [Source: Experian]. This simply shows that the original credit agreement was broken and is a normal part of the debt collection process.

Once your IVA is complete, you can take the following steps to build your credit rating [Source: StepChange]:

There are a few situations that you may need to think about when it comes to your banking. If you owe money to your bank or a company connected to them, for instance, your bank can automatically take money out of your account to pay the debt. This could leave you in a situation where you’re unable to meet your essential living costs.

You may need to open a new bank account when entering into an IVA to protect your finances if your current bank is one of your creditors, or a company controlled or owned by your bank is one of your creditors. Your Insolvency Practitioner can help you with this and make sure your money is safe.

Any savings you have must also be included in your IVA since this money can be used to contribute to your IVA, either as a lump sum or through the monthly payment plan.

You’ll need to stick to a budget for the full term of your IVA, which could restrict your spending. While your essential costs will always be covered, additional spending for recreational purposes may need to be controlled. This means that you may need to change your lifestyle habits to fit with your IVA payments and your remaining monthly budget.

This aspect of the IVA process is specifically designed to improve your financial well-being and allow you to set up healthy money habits, ultimately helping you avoid a loss of control over your credit in the future.