What are IVA spending restrictions? If you’re in an Individual Voluntary Agreement (IVA) or considering entering into one, it is critical that you be well-informed on what IVA spending restrictions are. In this blog, we will take a look at this commonly asked question.
It is easy to be overwhelmed by IVA spending restrictions, but it’s important to remember that these regulations are not created with the intention of punishing you.
Rather, they serve as a guide in ensuring your IVA agreement succeeds; ultimately allowing you and your family to recover financially without penalty or further consequences.
IVA spending restrictions include:
- Applying for new lines of credit — Applying for further credit whist in an IVA is strongly discouraged, as the odds of being approved are slim. However, should you decide to do so, it is mandatory that you contact your Insolvency Practitioner and receive their permission first. Your IP will then assess your financial situation once again before making a decision on whether or not they’ll grant approval for you to borrow money.
- The windfall clause — Should you be the fortunate recipient of a large financial windfall, such as an inheritance or lottery winnings, it is your legal obligation to notify your Insolvency Practitioner and make monthly payments into your Individual Voluntary Arrangement.
- Restricted banking — If you have an existing bank account with overdraft, it may be frozen due to other outstanding debts. However, don’t fret! You can swiftly and conveniently apply for a new bank account with another financial institution. You can also have a debit card with full online banking facilities.
- Some budget restrictions — To reassure your creditors that you are living within your means, you must provide evidence. Your IP will assess the total amount of money coming in and out each month to create a practical budget compliant with the guidelines accepted by lenders. If planning to craft your own budget, feel free to download this complimentary personal budget tool.
Your IVA provider will have no access into your bank accounts and they are not always keeping tabs on how you’re spending. They’ll review your income and expenditure annually, or whenever needed after a change in circumstances or when asked for by you.
Additionally, to confirm certain payments that were made, copies of financial statements may be requested from time-to-time. An indication that you aren’t adhering to the budget is if it’s becoming hard to make repayments towards the IVA arrangement.
Your IVA Payments and Budgeting
Become Debt Free’s experienced Insolvency Practitioner is dedicated to making sure that your monthly IVA payments are always affordable for you. They will analyse the details of your income and living expenses, so it is important to include all information accurately when filing out forms.
After calculating essential spending and bills, whatever remains of your income goes towards the IVA payment each month.
This means that every penny must be carefully monitored, and you should only spend on things that are essential. No extravagant and expensive purchases will be permitted in the expenditure. This means that whilst you can still do social activities such as go out for a meal or have a gym membership, the budget will no allow for expensive items such as personal trainers etc.
This budget plan will remain constant throughout the entirety of your IVA period which usually lasts five years in total.
Remember that the budget is established to assist you in achieving financial freedom, so remaining committed to your spending boundaries and following all of the conditions for your Individual Voluntary Arrangement (IVA) will lead you towards a clean slate at the end.
Additional income during the IVA
Upon the approval of your IVA, your IVA proposal or certain creditors may impose a condition on how additional income is to be dealt with. Usually, an additional income threshold will be calculated by your IP based on what you make and spend. This figure will usually be your current income (as stated in the IVA Proposal) plus an additional 10%. you will usually be required to pay 50% of anything above this threshold into your IVA. The threshold is reviewed annually at each review.
Let’s say you make £1,500 monthly; with an IVA, you can pocket an extra £150 each month without having to contribute anything back into the IVA. Most people save this added income throughout a year in order to purchase luxuries such as vacations or birthday presents. Any money earned above 10% (£150 in this case) should be put towards your IVA so that at least half of it will become yours and left for personal use — how you choose to spend the remaining amount is completely up to you!
Can you go on a holiday during an IVA?
IVA budgets and spending limits may seem stringent, but they are ultimately created to assist you in finishing your IVA payments and achieving financial independence. That being said, there is nothing prohibiting you from going on holiday as long as it falls within the confines of your budget.
For instance, any money saved through additional income should be put toward a holiday if possible – or perhaps someone close to you has been generous enough to gift you time away!
What Happens if You Go over IVA Spending Restrictions?
If you find that it is difficult to keep up with your IVA monthly payment, your Insolvency Practitioner will first examine your income and monthly expenditure anew to verify if the budget still works for you.
Additionally, they may request copies of bank statements in order to make sure that all spending falls within acceptable boundaries, as well avoiding any purchases deemed luxurious or unnecessary.
If you’re having difficulty adhering to your budget, it’s essential to evaluate if the budget is reasonable. If the living expenses appear manageable, an Insolvency Practitioner will anticipate that payments into your IVA are kept up-to-date.
It’s important to keep in mind that creditors have set parameters regarding particular forms of expenditures; this is a way of ensuring fairness between yourself and your lenders since they’ll be writing off some portion of their debt if the IVA succeeds.
What if you have an unexpected emergency expense?
When it comes to setting up your budget, you IP will make allowances for any unanticipated expenses such as vehicle repairs or home renovations and repairs.
You must allocate a monthly sum from the outset in order to be prepared when emergencies happen.
If an emergency strikes and you are unable to pay out of pocket or if meeting future IVA payments is difficult for you, contact your IP promptly so that they can assess whether adjustments should be made – like lowering current payments or taking a payment holiday-although this could affect the length of time needed for full completion of the IVA term.
Four tips for adjusting to life in an IVA
An IVA does not have to be a negative experience and may, in fact, produce positive outcomes. Those who have gone through an IVA often find that they are now knowledgeable money managers who can manage their finances independently. To make the most of your time in an IVA, here are some helpful tips:
- Communicate with your Insolvency Practitioner’s team — Your success in your IVA is their priority. Therefore, it is essential that you keep them informed at all times by maintaining open communication lines and asking questions when needed. Doing so will not only enhance the chances of completing your IVA successfully but also grant you financial freedom!
- Take your budgeting skills to the next level — Living within your means can be incredibly gratifying! Take time to explore the budgeting process, create spreadsheets, and look for less expensive energy providers. Establish a regular routine of making budgeting part of your lifestyle – it’ll pay off in ways you least expect!
- Take the time to reflect on your situation — Taking advantage of the Individual Voluntary Arrangement (IVA) provides a fantastic opportunity to recover financial freedom. Use this five or six-year window wisely. Learn from past money mistakes so you can move on from the IVA will full financial knowledge and confidence.
Continue the good habits once your IVA ends – After your IVA has been completed, you’re likely accustomed to making regular payments towards your debts. Instead of indulging in higher spending with this extra money each month, why not open a savings account and place that same amount away every single month?
You’ll have the necessary funds for noteworthy items like vacations or Christmas gifts without having to worry about financial strain..
Further guidance on IVA budgeting or general debt advice
Contact the team here at Become Debt Free today if you are dealing with unmanageable debts and are looking to discuss which debt solution is best suited to your needs. Or, if you are already in an IVA with us and have more questions on budgeting whilst in an IVA, please feel free to get in touch.
Contact us on 0113 237 9503 or complete the online form and one of our friendly advisors will be happy to discuss these with you.
