Help with IVAs if you can’t pay because of the cost of living · Debt Camel

Many people in an IVA are currently struggling because of the large rises in bills and prices in 2022.

The Insolvency Service has now issued Guidance to support the IVA protocol. (That is confusingly laid out  – look for the section headed 60) Guidance to support the IVA protocol for existing protocol compliant IVAs: 26 June 2022.)

This sets out what extra help IVA firms should provide because of cost of living increases. The IVA Protocol Standing Committee expects large numbers of IVAs to get reduced payments.

This extra help is there for people now if they ask for it – you do not have to wait until your next annual review.

New guidance – Reducing payments & a restriction on extensions

The Guidance says:

It has been agreed that reductions will generally be accepted by creditors of up to 50% of current contributions, or £75, whichever is higher.

This is a big improvement on the standard IVA terms and conditions, giving a lot more flexibility.

But there is one important exception – your IVA firm will only propose a reduction where they consider the IVA will be “sustainable”, see below for what will happen in this case.

When IVA payments are reduced, it’s common for the IVA firm to want to extend the IVA to make up for this. The Guidance says an extension should not be for more than a year, and it should not extend the IVA to more than 7 years.

This is good news, as some IVA firms have recently been suggesting a two year extension in some cases.

When the reduction being proposed by your IVA firm is within these guidelines, this should just be accepted by your creditors. You don’t need to worry about this.

Some people will need a larger reduction

How much your payment needs to be cut depends on your situation. For example someone with a long car commute will be paying a lot more in petrol.

If your £280 IVA payment needs to drop to £110, that is more than the 50% drop in the new guidelines. Here your IVA firm may suggest that you need to extend the IVA by more than a year. But I think you should object if the extension would make your IVA over 7 years long – that is unreasonable.

With these larger reductions, your creditors will be asked to approve the variation to your IVA by voting on it. This is a common procedure and your IVA firm will explain to your creditors why it is proposing this variation.

Unsustainable IVAs

Will your IVA fail?

The Guidance says that the Committee would not consider payments of less than £50 a month to be sustainable. And your IVA firm may consider a payment of only £75 to not be sustainable.

Here your IVA may fail, leaving you back with your debts and very little or no spare income with which to pay them.

But the new Guidance says that the IVA firm should consider whether your IVA should not fail but should be settled “on the basis of funds paid to date“. This means that, if your creditors agree,  your IVA will simply complete, without you having to make any more payments. Which would obviously be the best option for you…

Will your IVA firm agree to complete your IVA on the basic of funds paid to date?

The Guidance lists a lot of factors to be considered in deciding whether a settlement on the basis of funds paid to date should be proposed. You should read the list. But that may not give you any feel for whether they apply to you or not.

The following are my thoughts on when an IVA should be treated as settled, not failed. They assume that you have £75 or less to pay a month:

1. if you would currently qualify for a Debt Relief Order, then your IVA should be settled now 
   There is no point in making your IVA fail and you have to apply for a DRO – it will not generate another penny for your creditors.
   If you are renting and owe less than £50,000, check the DRO criteria now and talk to National Debtline on 0808 808 4000 about whether you qualify. You may have been told at the start of your IVA that you aren’t eligible – still check now as the DRO criteria have changed, your situation has got worse, and some people were given incorrect information about DROs at the start.
2. if you have no assets that would be realised in bankruptcy (eg a house with equity, car worth over £2000), then your IVA should be settled now
   Same as (1), there is no point in making you apply for bankruptcy after your IVA fails.
3. if your only asset is a car that is worth less than £8000, then your IVA should be settled now
   A car that is worth say £5000 would normally be sold in bankruptcy and you would be given a small amount to buy a cheaper car. But your creditors would not get any benefit from this as the Insolvency Service takes the first £8000 raised to cover its own costs.
4. if you have significant assets, the closer you are to the end of the IVA, the less reasonable it is to fail it
   If you have been paying your IVA for 4 years, you have done your best over a long period. It isn’t your fault you can no longer continue. The fact you may have had equity to release isn’t relevant as that simply isn’t going to be possible.
5. if your situation will clearly improve soon, then it’s unlikely your IVA will be settled
   I mean real improvements, not hoping that prices fall.

What to do if you need a reduction

Talk to your IVA firm

The new Guidance is provided for when someone asks for a review of their payments because of prices increases.  So you have to ask for this review.

Unless your annual review is only a few weeks away, don’t wait for this and try to struggle through. And don’t borrow money to try to keep yourself going.

It’s a good idea to gather your evidence together before talking to your IVA firm. Bank statements will help, but you may have had a recent letter or email about your rent or mortgage going up that isn’t yet on those statements.

For most people the largest changes are:

• energy bills;
• petrol;
• groceries.

But you may also have had a lot of smaller changes such as council tax, water, mobile contacts, broadband contracts etc. Make a full list of these. This is your chance to get your problem resolved, you don’t want to miss off a few smaller things that together add up to £25 a month.

When you are getting a review done now, in summer 2022, you also want the fact that your energy bills are very likely to increase by roughly 50% again in October to be taken into consideration. You don’t need to wait for that to happen – this is clear enough that your IVA firm should include that raise as well.

Do you have any better options?

A payment break is often proposed when someone tells their IVA firm they are in difficulty. But there is no sign that bills and prices are going to start dropping anytime soon. So that is unlikely to solve the problem.

I know some people have been asking their families for help, either to pay the monthly amounts or to settle the IVA early. Here it makes sense to see how large a reduction you can get from your IVA firm first. If you can get lower IVA payments, a smaller settlement offer from your family could be accepted.

What if your IVA firm will not agree?

First, don’t assume that you will have problems! You may be very worried and stressed. And your experience of annual reviews may not be positive. But just get a list of your expense increases and contact them asap.

But if problems arise, here are some suggestions:

• If your IVA firm says you can afford to pay more than you think, your first step should be to talk to a debt adviser and get them to help you draw up a budget and discuss any points your IVA firm made. Phone National Debtline on 0808 808 4000. Then, armed with this, go back to your IVA firm. The longer it is until the end iof your IVA, the more important it is that you get a reduction to a figure you feel you can live with.
• If your IVA firm wants to extend your IVA by more than a year, or to over 7 years, remind them of the Guidance and put in a complaint.
• If your IVA firm says they can only reduce your payments by 50%, you can ask for a larger reduction. This will have to be put to your creditors to vote on, but there is no reason why this shouldn’t happen.
• If your IVA firm says your IVA is unsustainable and they will not propose that it is completed on the basis of funds paid to date, ask them to explain why not. Tell them if a debt advisor has said that you will qualify for a DRO. Explain why you think they should agree to this.

You can make a formal complaint in writing if you think they are being unreasonable.

Or insist on a proposal to complete your IVA being put to your creditors – your IVA firm will tell the creditors why it doesn’t think this should be approved but you can ask for your reasons to also be put forward.

What happens if your IVA does fail?

In the end, if the worst happens and your IVA fails, then you are left back with your debts. See What can you do after an IVA fails which looks at the alternatives.

In addition to the five options there, if you think your IVA firm has been unreasonable in failing your IVA and you have no reasonable prospect of making any debt repayments, you could also ask your creditors to write off your debts.

More than a third of IVAs fail

FCA tries to reduce IVA mis-selling

Could a Debt Relief Order help you?