In an IVA but cant afford to keep paying.Any advice please.

spikeisbroke_2

Hi all,

Please can anyone help me.

I have been in an IVA for 2 years now and have really been struggling to pay it. Initially i was told that the payments were going to be £200 then it jumped to £350 and was told " if you dont pay this amount then you cant do it" by the supervisor of the IVA 4 months before the creditors had a meeting.When challenged about this i was told it was the creditors that wanted the payments higher not the supervisor ( yet they hadnt met yet! )
I have told them each year that i cant keep paying the IVA, and that i need advice but they are not interested. I have borrowed from all in my family that i can,but i cant keep doing that so do i, not pay anymore and see what they say or get further in debt and struggle? I have put off some bills to make sure i pay but im just getting more overdrawn each month.:eek:
I have £32,000 debt, does £350 a month sound right for an IVA payment with £8,000 to come at the end by re-mortgage.
Please help
Thanks for reading my message

MIVAA

Hi spikeisbroke,

Firstly, sorry to hear you are experiencing difficulties with the affordability of your IVA payments. I can imagine its making your life an absolute misery.

There are a few questions that your post raises, and I'll do my best to address each of them for you.

Initially i was told that the payments were going to be £200 then it jumped to £350 and was told " if you dont pay this amount then you cant do it"

Some IVA companies use this tactic to 'hook' their potential clients. By suggesting low contributions they are able to draw clients in, which increases the amount of clients who are prepared to apply for an IVA with their company, especially when other more ethical IVA companies, would be quoting the more accurate higher figure from the outset.

However, it could also be that on initial contact you spoke to a less experienced adviser who made an error when calculating the payment, which was later realised and corrected.

Bottom line though is that in either event I think the £350 is the correct minimum payment due to the assessment below.

.....4 months before the creditors had a meeting.When challenged about this i was told it was the creditors that wanted the payments higher not the supervisor ( yet they hadnt met yet! )

It is quite normal to be told how much your IVA payment will need to be before your IVA creditors meeting. This would normally be tackled quite early on in the process. In all IVA cases, there is a requirement for the debtor to offer a sufficiently large return through the IVA to satisfy his particular creditors known minimum requirements.

As your payment will be returning approx 40p in the £, after costs, it seems to me that you may very well had HSBC as one of your creditors, and they probably owned more than 25% of your total £32,000 original debt, so did you owe HSBC a debt of more than £8,000?

If this is the case, it would explain why your IP suggested £350 as a minimum level for your IVA. HSBC have a minimum repayment criteria of 40% which must be reached before they will accept an IVA. If HSBC had control of your IVA with a debt of £8,000 or more, you would need them to vote 'YES' to the IVA, because without HSBC's 'YES' vote, your IVA would be bound to be rejected.

I hope this helps you to understand why your IVA payments are £350, and not less.

But what can you do about it?

Well, the the first thing you need to do is speak with your IP. Your IVA payments are supposed to be based on affordability. If the £350 is beyond your budget as you say, and you are only able to afford the payments because you are borrowing money from family, then I suggest you instruct your IP to put forward a variation meeting.

A variation meeting offers you the opportunity to gather all your creditors together again to vote on allowing a variation to the original IVA agreement.

If the variation is accepted by your creditors, your IVA continues under the new agreed payment.

One particularly interesting piece of news for you will be dependent on my earlier assessment being correct.

If you do have HSBC as on of your major creditors, you will be pleased to hear that they very recently are believed to have relaxed their minimum criteria, from 40% back to 25% which, if true, means there is a really strong possibility that they would agree to payments around the £275 mark, or maybe even lower.

....I have £32,000 debt, does £350 a month sound right for an IVA payment with £8,000 to come at the end by re-mortgage

I would suggest you read your IVA proposal with regard to your expected equity release. The chances are that the equity you were expecting to release was only assessed at the time as being £8,000. and will be subject to change in a changing market.

So, if the value of your property has fallen, and therefore the level of releasable equity has been significantly reduced due to the credit crunch, you should ask your IP to confirm that you will only be required to re-mortgage the releasable equity, which could be substantially less than £8,000, and may be zero.

I hope this information helps you get your IVA back on track, and here's hoping 2009 will be better for you all round.

MIVAA

coolcait

MIVAA wrote: »

Hi spikeisbroke,

Firstly, sorry to hear you are experiencing difficulties with the affordability of your IVA payments. I can imagine its making your life an absolute misery.

There are a few questions that your post raises, and I'll do my best to address each of them for you.

Some IVA companies use this tactic to 'hook' their potential clients. By suggesting low contributions they are able to draw clients in, which increases the amount of clients who are prepared to apply for an IVA with their company, especially when other more ethical IVA companies, would be quoting the more accurate higher figure from the outset.

However, it could also be that on initial contact you spoke to a less experienced adviser who made an error when calculating the payment, which was later realised and corrected.

Bottom line though is that in either event I think the £350 is the correct minimum payment due to the assessment below.

It is quite normal to be told how much your IVA payment will need to be before your IVA creditors meeting. This would normally be tackled quite early on in the process. In all IVA cases, there is a requirement for the debtor to offer a sufficiently large return through the IVA to satisfy his particular creditors known minimum requirements.

As your payment will be returning approx 40p in the £, after costs, it seems to me that you may very well had HSBC as one of your creditors, and they probably owned more than 25% of your total £32,000 original debt, so did you owe HSBC a debt of more than £8,000?

If this is the case, it would explain why your IP suggested £350 as a minimum level for your IVA. HSBC have a minimum repayment criteria of 40% which must be reached before they will accept an IVA. If HSBC had control of your IVA with a debt of £8,000 or more, you would need them to vote 'YES' to the IVA, because without HSBC's 'YES' vote, your IVA would be bound to be rejected.

I hope this helps you to understand why your IVA payments are £350, and not less.

But what can you do about it?

Well, the the first thing you need to do is speak with your IP. Your IVA payments are supposed to be based on affordability. If the £350 is beyond your budget as you say, and you are only able to afford the payments because you are borrowing money from family, then I suggest you instruct your IP to put forward a variation meeting.

A variation meeting offers you the opportunity to gather all your creditors together again to vote on allowing a variation to the original IVA agreement.

If the variation is accepted by your creditors, your IVA continues under the new agreed payment.

One particularly interesting piece of news for you will be dependent on my earlier assessment being correct.

If you do have HSBC as on of your major creditors, you will be pleased to hear that they very recently are believed to have relaxed their minimum criteria, from 40% back to 25% which, if true, means there is a really strong possibility that they would agree to payments around the £275 mark, or maybe even lower.

I would suggest you read your IVA proposal with regard to your expected equity release. The chances are that the equity you were expecting to release was only assessed at the time as being £8,000. and will be subject to change in a changing market.

So, if the value of your property has fallen, and therefore the level of releasable equity has been significantly reduced due to the credit crunch, you should ask your IP to confirm that you will only be required to re-mortgage the releasable equity, which could be substantially less than £8,000, and may be zero.

I hope this information helps you get your IVA back on track, and here's hoping 2009 will be better for you all round.

MIVAA

But doesn't this describe one of the resons why there are criticisms of the way IVAs/Trust Deeds are sold?

If the assessment is made on the basis that creditor 'x' will only accept a certain amount, and that the client must therefore pay at that level, that seems to me to be missing the point that the client can only make payments at a lower level.

The viability of the IVA should be assessed on the amount that the client can pay. If that amount is less than the creditor will accept, the client should be told that up front.

If a client is 'hooked'/ dealt with by an inexperienced adviser/ whatever, but enters and IVA thining that they only have to pay 'y' amount, but after signing they are told that it should be 'y++' amount, and that this is likely to be because creditor 'x' won't accept any less, then that sounds like misselling to me.

In terms of cold figures, spikeisbroke owed £32,000; he is paying £350 per month over three years, plus £8000 for the equity in his property. So he's paying £20,600 into the IVA. That's 64% of his total debt.

So, to achieve a 40% payment to HSBC - if your assessment is correct, he'd have to pay £12,800 into the IVA. £8,000 from the equity leaves £4,800 to be paid over 36 months - so £133.33 per month.

What's happening to the other £200+ per month? And why wouldn't any variation bring spike's monthly payments down to £133.33 per month, rather than £275 per month?

Spike, I'd suggest you concentrate on the pararaph of the OP's post which starts "Some IVA compaines use this tactic to 'hook' their potential clients", and find out who you should talk to about mis-selling of IVAs.

spikeisbroke_2

many thanks coolcait and mivaa for your answers so far.

the £200 initially told to me was by an experianced person / or salesman ?

i wasnt happy at being told this but was put in a position that i had no alternative.
And your correct in saying that hsbc was 1 of the creditors.

MIVAA

Hi coolcait,

I think your understanding of what an IVA is and how it works are confused. I'll try to explain.

If the assessment is made on the basis that creditor 'x' will only accept a certain amount, and that the client must therefore pay at that level, that seems to me to be missing the point that the client can only make payments at a lower level.

The viability of the IVA should be assessed on the amount that the client can pay. If that amount is less than the creditor will accept, the client should be told that up front.

I totally agree with you on this point. As I have said previously on this forum, a person should not over stretch themselves, and should remain realistic with their ability to afford payments into an IVA. It is down to an adviser to assist them in this assessment, but ultimately the decision rest with the IVA applicant.

If a client is 'hooked'/ dealt with by an inexperienced adviser/ whatever, but enters and IVA thining that they only have to pay 'y' amount, but after signing they are told that it should be 'y++' amount, and that this is likely to be because creditor 'x' won't accept any less, then that sounds like misselling to me.

From what spikeisbroke said in his OP, I believe this change was made 4 months before the IVA was accepted by spikeisbroke's creditors. Therefore was agreed by spikeisbroke as being affordable 4 months before he was actually legally bound by the IVA. Plenty of time for him to reconsider his position, and as I said earlier, it was his decision.

Even though, as he has since said, "he felt he had no choice" this is simply not true, he could have declined the higher payments, and taken the route of a DMP. Which by the way would not have offered the same protection of an IVA, or indeed a potential write-off at the end.

In terms of cold figures, spikeisbroke owed £32,000; he is paying £350 per month over three years, plus £8000 for the equity in his property. So he's paying £20,600 into the IVA. That's 64% of his total debt.

There are a couple of issues here. Firstly, spikeisbroke's IVA is the same as all IVAs, in that it is a legally binding agreement that allows him to offer his creditor's reduced monthly payments, based on affordability, for a fixed term which is normally 5 years.

For this agreement to be acceptable to creditors, spikeisbroke will be required to repay to his creditors whatever he can afford to pay during that time, including paying over any equity that he may be able to raise from his assets.

There is, however, a minimum return, or dividend, that an IVA must achieve, and it must be able to be demonstrated by the applicant how it will be achieved, before creditors will accept the IVA. This cannot include the potential introduction of equity, as it is by no means certain that the equity will still be there in 4-5 years time, especially in today's economic turbulence.

Because of this, you cannot use the logic you have applied to produce your figures.

And secondly, the 40% we are referring to is the return the creditors get after costs have been deducted.

So, to achieve a 40% payment to HSBC - if your assessment is correct, he'd have to pay £12,800 into the IVA. £8,000 from the equity leaves £4,800 to be paid over 36 months - so £133.33 per month.

Therefore, with typical IVA costs of approx £8,000 inc vat, I estimated 40% of £32,000 + £8,000 divided by 60 payments = £346.00 p/m

The £8,000 equity is not included in this intitial calculation because, as I said, it was never really able to be guaranteed, it was more likely as not indicated to creditors as being a potential introduction at a later stage.

His creditors would be able to see that spikeisbroke was prepared to offer his equity towards his debts if it was available, with the normal procedure being for the introduction of equity at a prearranged time, if the equity is still available, and as we know it may not actually be available any more.

People seem to forget that an IVA is an alternative to bankruptcy. It is to help people who are insolvent, people who are facing bankruptcy or being made bankrupt by a creditor.

It is a Voluntary Agreement that allows a debtor to pay his creditors as much of his debt as possible, over a set time period, and in the event there is some debt forgiveness it is because the debtor could not actually pay off what was owed during the IVA's term. This write-off is of definite benefit to the debtor, but IMO shouldn't in itself be the driving force behind an IVA application.

What's happening to the other £200+ per month? And why wouldn't any variation bring spike's monthly payments down to £133.33 per month, rather than £275 per month?

I hope you can now see what is happening to the other £200+ p/m, i.e. it's going to his creditors.... and why the variation will not reduce his payments to £133.33. Though it is only my assessment that suggested £275, as I've said, he should talk to his own IP for an accurate re-evaluation.

I hope this helps.

MIVAA

peachyprice

Spikeisbroke,
If there really is no longer any, or very little, equity in your home, as suggested may be the case above, and you cannot afford the payments without getting further into debt you should perhaps look into brankruptcy as a very viable option.

AdamMerry

I was in a similar position about a year since now, i was out of work for about 2 month then got a new job but my wage was much lower.
I had missed 2 months payments and when the money started coming in again i owed most of my first wage out (monthly paid) to friends/relatives that i had borrowed from just to keep going while i was out of work so that made it 3 months not paying my IVA.
To cut a long storey short, after deciding i had nothing to lose by going bankrupt i phoned my IVA manager and told him that i did not have the money to carry on and was thinking of going bankrupt and surprise surprise they dropped my payment by £90 per month- but added 6 month on to my IVA.
Just done 2 1/2 year now of my IVA and im just about managing to make ends meet.

Jam_Buttie

I owed £30,000 and pay back about £321 a month over 5 years with my IVA. they monitor my income and expenditure every 6 months and will increase or decrese the payments accordingly.

skibadee

I owe £54,000 and pay back £196 a month over 5 years with my IVA....done through CCCSVA.
Though I have to say I'm not convinced this was the right course of action for me and am now considering BR.

MIVAA

peachyprice,

Just because there may be little or even zero 'releasable' equity in spike's property it doesn't mean there is no equity available for the OR if he went bankrupt.

There could potentially be 25% of the value of his property in equity, but without a lender prepared to lend him more than 75% of that value of his property, then the money is tied in and becomes 'unreleasable' equity, and therefore beyond the reach of his creditors in an IVA.

However this is not the case for bankruptcy, which would obviously look for him to sell the property to free up the equity.

It is for this reason many people prefer an IVA over bankruptcy, because an IVA protects a substantial chunk of equity before creditors are likely to get anything at all.

Skibadee,

I owe £54,000 and pay back £196 a month over 5 years with my IVA....done through CCCSVA.
Though I have to say I'm not convinced this was the right course of action for me and am now considering BR.

That seems an incredibly low monthly contribution, are you expected to introduce higher payments into the IVA at a later date?

MIVAA

AdamMerry

skibadee wrote: »

I owe £54,000 and pay back £196 a month over 5 years with my IVA....done through CCCSVA.
Though I have to say I'm not convinced this was the right course of action for me and am now considering BR.

That does sound very good payments for what you owe.

I owed £51,000 and payments were made at £390 per month until i lost my job, now down to £300 with my new job on a lower income (bare in mind though they have added 6 months on to my IVA).
Do they not work your monthly payments out on your situation though ? The more your earning the more you will have to pay per month.
I sometimes wonder, is it worth me working overtime for me to get a decent wage, I'm lucky were i work basic pay is poor but overtime is good and you can work as many hours overtime as you like. But when i have my 6 months review half the overtime has to go back on my IVA :mad: