An Individual Voluntary Arrangement (IVA) is a debt solution which involves yourself and your creditors coming to a legally binding agreement to extend your loan term and make reduced monthly repayments over this new timeframe.
Whilst an IVA can provide you with a flexible option to address your debt and alleviate the financial strain of debt in the short term, they nevertheless come with a number of dangers which need to be carefully considered.
The following page will explain the potential impact that setting up an IVA could have on your bank accounts and pension.
When setting up an IVA, you might be required to make alterations to your bank account. This is to prevent your bank from automatically seizing cash from your account in order to recover repayment for outstanding debt you owe. A bank’s ability to undertake this type of action is called the right to off-set, though they are only entitled to do this if your bank account is directly connected to your creditors.
If you are aware that a direct link has been established between your bank account and your creditors -either through a direct debit scheme or your authorisation of their right to apply the continuous payment authority to your account – then you will need to transfer your money out of your cash immediately after deciding upon using an IVA, so that your money is left untouched.
If you are someone who is currently setting up an IVA, then your presiding insolvency practitioner should evaluate your situation and let you know if there is any necessity to change your bank account.
How can I tell if my personal bank accounts are connected to my creditor debts?
If you are currently finding it difficult to identify whether your bank account is connected to one or more of your creditor debts, use the below checklist to ascertain whether you need to start taking action to switch bank accounts:
- Do you currently owe your bank money from a personal loan or credit card they have given you and also hold a current account with them? If so, then it is recommended you consult your insolvency practitioner immediately and start taking steps to switch bank accounts.
- Is the creditor you owe your debt to a subsidiary of your bank account provider? If so, then you should consider taking steps to switch bank accounts immediately.
- Is your lender and your bank part of the same umbrella business.
How will an IVA affect my savings account?
When you set up an IVA, you will usually be asked to use at least some of the money from any savings account you hold to make a lump sum payment to your lenders or to subsidise the costs of some of your monthly IVA contributions.
Will my IVA impact my state pension?
If you are of an age where you are currently receiving payments from your state pension, or are scheduled to do so over the course of your IVA, then this will be factored in by your insolvency practitioner whilst they are preparing your proposal and will be reflected in the amount they make as a monthly offer to your creditors.
Will my IVA impact my personal or work pension?
If you decide to set up an IVA and are currently receiving payments from a personal or workplace pension, then your insolvency practitioner will take this into consideration when determining the amount of money you can afford to pay into your IVA each month. This also applies to lump sum payments you are set to receive from your personal pension, and you might be asked to include this in your IVA.
If you carry on depositing cash in your personal pension, your lenders might request that you cease doing this and utilise the cash alternatively to repay some of your debt. If this situation arises, you will be obligated to stop making payments into your payment for the duration of your IVA, typically five years. Nevertheless, due to their overarching flexibility, it might be possible to carry on making payments into your workplace or personal pension pot, if you stress the importance of how it important it is to your future. You should consult your presiding insolvency practitioner about this issue when you first embark on setting up an IVA, so you are fully aware of the potential ramifications obtaining an IVA will have on your pension.
Deciding on an IVA
- How does an IVA work?
- Which debts can I include?
- How much does an IVA cost to set up?
- Income and Asset Requirements
- How an IVA will affect homeowners
- How an IVA will affect your bank accounts and pension
- How an IVA will affect your credit rating
- How an IVA will affect your work, home and assets
- The lasting power of attorney
- Is an IVA the right solution for me?