If you’ve been thinking about an IVA for a while but, having been furloughed from your job you thought that the option had been ruled out, this article should answer some of your questions and help you to decide if an IVA could still be on the cards.
Can I apply for an IVA whilst I’m furloughed from my job?
The quick answer is “yes”. Let me explain a bit more….
What is an IVA?
An individual voluntary arrangement (IVA) is a legal agreement between you and your unsecured creditors which is put together and overseen by an Insolvency Practitioner (IP). Unsecured creditors are the people you owe money to that don’t have security against your property. I.e. loans, credit cards, store cards, pay day loans etc. but not your mortgage or car finance.
What does it involve?
An IVA usually requires you to make monthly payments from your income each month, often over a period of 60 months (5 years). At the end of the agreed period the outstanding balance of debts will be written off.
Sometimes an IVA will involve one lump-sum payment from you – where you have a lump-sum to offer to your creditors which isn’t enough to pay them in full.
However, the terms of an IVA can be changed provided that you and your creditors agree to what is being put forward.
You can find out more about IVAs here.
How much will I have to pay each month?
The payment to your IVA is worked out by taking all your essential living costs from your income. Those living costs can include allowances for things like sports and hobbies and gifts, but your creditors will expect you to keep your monthly expenses low. You are expected to pay as much as you can for the period of the IVA.
So how can I do an IVA now when my income has dropped?
Whilst you are furloughed it may be that you can still afford to make a payment to an IVA because some areas of your spending may be lower than normal because you’re staying at home; expenses such as travel, hairdressing, sports and hobbies etc.
An IVA can be put forward to your creditors with low payments at the start, which then step-up to a higher level when things are back to normal.
If you can’t afford any payment at all from your furlough pay, your IP can suggest £0 as a payment for now, stepping up later.
Given the uncertainty at the moment, a low or zero payment for the first 6 months would have a good chance of being accepted. The term of the IVA could be increased to 66 months to allow for this. So, as far as the creditors are concerned, they’ll get the same money in the end but they have to wait a bit longer for it.
What should I do now?
You’ve never had more spare-time on your hands, so now may be a good time to reflect on your situation and start getting your finances back on track. You can get debt advice here to see if an IVA is an option for you.