Could your IVA repayments be reduced?
Thousands could have their debt repayments reduced or completely written off. IVA firms have been prompted to reduce monthly debt repayments by up to 50% for individuals struggling through the cost of living crisis.
Debt advisers are being praised for this decision as one in four British population has to skip meals to pay for their increasing bills.
What is an IVA?
As a quick recap, an IVA is an Individual Voluntary Agreement. If you have debt you can contact an IVA company that will speak to your creditors on your behalf with the aim of consolidating your debt into affordable monthly payments. All your monthly expenses are taken into account to ensure you are living within your means.
After 6 years if your debt has not been paid in full it is completely written off, leaving you debt free.
Who will be considered for reduced payments?
To have reduced payments, you’ll need to speak to your IVA firm and ask for a review. Typically these reviews are done annually but you can contact your firm for an early review.
If your firm believes you are eligible for repayment reductions, they will inform your creditors. Your creditors will then vote on whether to approve a reduction in repayments.
You are more likely to be approved if your payment plan looks like it is likely to fail due to your current living costs. We recently covered the cost of living crisis, so if you are unsure if you could be considered we recommend checking out the article.
Why reduce IVA payment plans?
The Insolvency Service has issued this new guidance in relation to the current cost of living crisis. This guidance acknowledges how preexisting agreements did not account for future expenses in a financial climate that has shown a 50%+ increase in energy bills. Many previously agreed IVA can’t feasibly be paid off without placing the individual into further debt.
With 81,199 IVAs registered in England and Wales in 2021, the highest since records began in 1990, according to the Office for National Statistics. Clearly, the current financial climate is resulting in many people becoming insolvent due to the inability to pay their rent and mortgage. Then with a further 23,997 IVAs registered in the first three months of 2022, we could be set for another record-breaking year.
Debt to be wiped away
The Insolvency Service is urging advisers to consider requests from people wanting to lower their monthly payments. Previously creditors were generally willing to accept reductions of up to 15%. However, with everything from food to oil prices creeping up on a weekly basis, they could end payments altogether for those whose payments hit that of £75. Any individuals making monthly payments below that level could have their agreement ended early.
Not all payments will be reduced or end
It should be noted that this situation is running case by case. Meaning not all individuals will receive this opportunity.
Before finalising and ending any repayments early, the insolvency practitioner will consider other means of resolving their repayable debt. This could include filing for bankruptcy or a DRO (debt release order), depending on the case’s circumstances.
Why are IVAs an issue?
Current IVAs could place their debtors in a financial situation they will likely be unable to recover from, negating the aim of an IVA and causing their collapse. The simple solution to this is to increase the length of the agreement while reducing each individual payment. This would in turn provide debtors with the funds they need for day-to-day life while allowing creditors to get back everything they are owed.
Need further help?
If you are worried about insolvency or need a bankruptcy annulment, contact Asset Solutions today at 0800 689 3861.
Our experienced team members provide unrivalled assistance to individuals throughout the entire insolvency process and help to stop bankruptcy. We understand that anyone facing problem debt is likely to feel overwhelmed and intimidated. That’s why we’re here to support you throughout the process and help you achieve the best results possible for your situation. Contact us today for more information.
