Urgent advice required on IVA vs DMP - IVA suggested by Payplan but I believe DRP better

NotwhereIwantedtobe

Hi,

Newbie here , and want to say how grateful I am for finding this forum and advice.

Apologies for the long post, but I feel a full picture always helps and time is short as I have a call tomorrow to discuss this.

I am looking for advice on IVA vs DMP. I had a call with pay plan re. credit card debt which has spiralled from being actively paid off a year ago to being at the point of not being able to pay.  I will default this month. Current minimum payments and interest now about £1000 per month with some on interest free still. Total debt £64000.

I have not ever missed any repayments but stupidly used all my savings to keep on top and will default this month.

They advised IVA and writing off some of the debt due to being a homeowner & small amount of money to repay. However I didn't have time to digest al information on the initial call and have since read further on this brilliant forum and mapped out what my next 5-10 years will look like and its different to our initial conclusion with my available money to repay increasing throughout the terms with some additional lumps sum payments being an option.

I have a phone call with them tomorrow, meant for setting up the IVA, but have since emailed to say I don't want this option and would prefer a DMP and will discuss further in the call.

I take full ownership of my situation, but feel its very relevant to mention that I have a long term disabling health condition ( a bit like MS) which can flare up unpredictable and that my original debt came from being hospitalised with covid pre-lockdown (am an NHS worker) followed by 2+ years of long covid where I was too ill to manage my finances effectively - mortgage rates, deals insurances etc all ran off their rates & I paid far more which lead to debt. I stupidly sought advice from the wrong people then as I was still too ill to think clearly ( I had severe brain fog with the long covid) and put all debt from that time into a consolidation loan.  I thought I was using  a genuine company clearscore for advice and service they recommended but it turns out I was mistaken and have paid a heavy price in fees and high interest ongoing. I am setting up a power of attorney for my son to prevent such an predictable event affecting my finances again.

I had planned for potential increased interest rates & managed those when they came, but like many when the cost of living, bills , food etc went up my income equalled my outgoings and I built up more debt as my salary did not increase in line. I paid down most debt 14 months ago out of a lump sum drawdown from my pension and was actively paying it off, but the last 2 years were not kind to my health with another new problem causing issues until it was diagnosed and now under control and a freak accident stopping me from making additional income most of last year.

One of the reasons they suggested IVA is they feel it would put less stress on my health condition, but having read the clauses and conditions and inflexibility of this I strongly believe it would be far worse for my health than having some control and being actively able to manage it and add more income to pay it off earlier.

I have completed my budget in finite detail and culled what I can, 2 contracts ending this year yet to be negotiated or removed. I haven't time to post today, but can assure you it is accurate and no wriggle room. 

However the following options and life changes need to be considered and are the reason I believe a DMP is better. I fell I need the breathing space of no  / reduced interest or charges to get back on top of my repayments.

Just looking for opinions, particularly anyone else at my stage of life or with long term health conditions.

Summary of potential next 5-10 year events.

 - I am 53

 - I work part time  due to health but my pension makes my take home the same as my full time income was.

 - I support my youngest child still until the summer - my free money to pay debt will increase by £200 per month at this point. so by Autumn I can repay £440 - 500 per month ( 1/2 the current requirement with interest)

 - I have significant equity in my house £200,000 - £250,000. I have looked to downsize but cannot do this for at least a year as have some essential structural work required to realise this equity and would not get its full value without the work, significantly less and would be hard to sell.

 I also currently have my youngest at home until later this year. I have friends helping me renovate this and this is my go to solution sooner or later to repay the debt in full even if it takes 3-5 years until sale. I will not be able to complete this work fully on an IVA as they would not allow the budget ( up to £5000 as its structural repair)

Due to my age, health, already being on a pension and not being able to get further life insurance I cannot add to my mortgage and am too young for equity release, not that I think these would be right as after this year I do not need to live in a family size house, its just not fit for sale yet.

I cannot yet buy another property where I live without a mortgage so an IVA seems stupid to prevent this happening. My mortgage has 13 years left (£141,000) but is being paid down all the time so worse case scenario if price difference between properties stayed the same by 4-5 years I could potentially pay any remained debt and most / all of the mortgage and get a tiny property.

 - I am a carer for my elderly mum with significant health issues. I have £50-100 travel expenses a month for this, she cannot claim carers allowance as she can still dress herself. It is quite likely she will either be too unwell to stay at home by the end 5 years or the worst may happen. This both adds £100 a month to debt repayment and removes the need to stay in the area I live which helps the downsizing potential

 - I have the option to take a lump sum from my pension in the next 5+ years if all else failed.

Should my health condition deteriorate seriously to affect my ability to work, I can take this under ill health retirement at any time. It would make day to day living much harder income wise but with downsizing could leave me totally debt free. It's a significant monthly income drop so not an option yet if it can be avoided, but is an emergency solution if health became an issue.

 - One other thing I haven't told them as it's not reliable, consistent or guaranteed is I can generate additional income by some work I can do from home. I obviously plan to actively do this again, my health being what prevented me sporadically the last 5 years hence I haven't mentioned it.


I have opened another bank account on advice of the forum, plan to continue selling various items I do not need on eBay, vinted etc and any extra income to go into there. I fully intend to use the bulk of this to add to repayment but also an emergency fund and pay for making the house saleable. And my elderly car needs replacing or signifiant costs as its 13 years old with MOT notifications. I am required to have a car and a functionally car under 14 years ago for my job.



In summary potential repayment over next few years

Now - £240 per month
Late summer onwards £440-500
If I do not need to be an active carer - additional £50-100 per month
Additional income - additional £500 per month on average, can be up to £1000

Potential lumps sums

Sale of house - should meet full remaining repayment or if I cannot get a mortgage would allow up to £1400 extra a month into repayment pot instead of paying a mortgage with reduced household bills as well.

Pension lump sum - unknown amount



Income 3204 including pension
Full outgoing after cuts and next months interest rate cuts - 2964
Mortgage portion - £1421 dropping to ?£1371 in feb
I have a lot of health costs in my outgoings which can't be changed

I feel I can pay off better and quicker by a DMP but obviously scared of how things will pan out and would like opinions from those with experience. I have lost trust in 'independant' advice after last time and felt quite pushed into IVA. Obviously I have abetter plan than when I discussed with them and I am not someone who can be pushed into something, but I want to know I am making the correct decision.

Thank you in advance

sourcrates

Hi, short answer is if you have an unpredictable health issue, which may affect your ability to work, and thus your income, you should not consider the IVA.

An IVA requires you to make at least 60 on time monthly payments to your arrangement, you need stability to be able to do this, any missed payments just extend the arrangement further, also payments increase when your income does, any windfall will have to be paid to the IVA, so its not very flexible, and a lot do fail because people simply do not understand how an IVA works.

I have had both IVA and DRO in the past, you would be better sticking to an informal, more flexible DMP, a much safer choice in your situation I would say, as there are no rules in debt management, but there are in any insolvency.

NotwhereIwantedtobe

sourcrates said:

Hi, short answer is if you have an unpredictable health issue, which may affect your ability to work, and thus your income, you should not consider the IVA.

An IVA requires you to make at least 60 on time monthly payments to your arrangement, you need stability to be able to do this, any missed payments just extend the arrangement further, also payments increase when your income does, any windfall will have to be paid to the IVA, so its not very flexible, and a lot do fail because people simply do not understand how an IVA works.

I have had both IVA and DRO in the past, you would be better sticking to an informal, more flexible DMP, a much safer choice in your situation I would say, as there are no rules in debt management, but there are in any insolvency.

Thank you so much for the quick informative response.

This is the conclusion I came to and for the same reasons. I really appreciate your advice.

I feel I have options this way, and I should have mentioned in my post that one of the key causes of my condition flaring is stress and trauma, not being in control and able to actively manage things I know would cause this and every instinct in me said NO once I had time to properly consider my options and future potential life events and income.

sammyjammy

On the question of your mother, she should put in a claim for Attendance allowance, ability to dress herself will not be a reason for a failed claim.

https://www.gov.uk/attendance-allowance/eligibility

My late grandmother had it for both night and day and lived independently at home.

ManyWays

I agree with @sourcrates that an IVA with unpredictable health issues is not a good option. Or with things that may improve a lot in your situation. Or where you may want to sell the house. IVAs are best fro people with very boringly predictable circumstances. 

In general I think using pension money should be the last resort to clear credit card debt, but there are 3, possibly 4, things that you havent listed that could help in a DMP but would not improve an IVA:

1) being able to make lower settlement offers to defaulted debts, especially after the first couple of years
2) being able to make affordability claims to the cards where you have paid interest, winning any complaints would reduce the balance
3) one of your children may want to stay with you and pay rent for a while. Or you could get a lodger. You may not want to, but it another option that can give you tax free income for a few years. 
4) (possibly) being able to ask for the CCA agreement for a credit card after it has been sold to a debt collector. If a copy of this cannot be produced, the debt is unenforceable (I say possibly for this one, as it's quite likely that the right to ask for this may be removed in the next few years, so you cant rely on this one being available to try) 

NotwhereIwantedtobe

ManyWays said:

I agree with @sourcrates that an IVA with unpredictable health issues is not a good option. Or with things that may improve a lot in your situation. Or where you may want to sell the house. IVAs are best fro people with very boringly predictable circumstances. 

In general I think using pension money should be the last resort to clear credit card debt, but there are 3, possibly 4, things that you havent listed that could help in a DMP but would not improve an IVA:

1) being able to make lower settlement offers to defaulted debts, especially after the first couple of years
2) being able to make affordability claims to the cards where you have paid interest, winning any complaints would reduce the balance
3) one of your children may want to stay with you and pay rent for a while. Or you could get a lodger. You may not want to, but it another option that can give you tax free income for a few years. 
4) (possibly) being able to ask for the CCA agreement for a credit card after it has been sold to a debt collector. If a copy of this cannot be produced, the debt is unenforceable (I say possibly for this one, as it's quite likely that the right to ask for this may be removed in the next few years, so you cant rely on this one being available to try) 

Thank you for these. 

I forgot to mention in my post, but did include in my email to pay plan that the potential for rent / lodger was an option while staying in my house. I have space and through colleagues know there is octant demand for lodging by junior Dr's and medical students especially to lodge with other NHS colleagues so this is a very real option if required.

I wasn't aware of affordability claims and will look into it. I had previously thought if I had been in a better state back at the beginning I would have had cause for consideration of interest on the debts I had consolidating into the loan due to the fact I was very ill and in hospital, but of course hindsight - when you are actually this ill you cannot do these things and they are not on your mind. I know that ship sailed too long ago to do anything about.

The lower settlements I have been reading up on in here and that could work well for the time I get to sell the house if I do sell it

I appreciate your advice 

fatbelly

A dmp is not a disaster and if the house repair is a priority then that is the better route.