IVAs and Redundancy

Individual Voluntary Agreements (IVAs) have become a very popular way to help those struggling to repay unsecured debt. In order for an IVA to be agreed with Creditors, an Insolvency Practitioner must first review all of the applicant’s income and expenditure to calculate an affordable monthly amount that may be repaid. The IVA itself usually lasts from 5 to 6 years, and assuming the applicant has a regular income for this period and maintains the payments, any outstanding debt will be cleared at the IVAs conclusion. However, there are occasions when an individual may be made redundant which could have implications on the IVA.

First Step

Should redundancy occur, there are a number of steps the individual must take. In all cases, the IVA supervisor needs to be informed within 14 days of the redundancy being made known. This is irrespective of any redundancy payment that is due. Where there is to be a payment, then the amount should be declared to the IVA supervisor within the same time frame.

Financial Review

The supervisor will then need to discover all the facts about redundancy pay and new income and expenses budget will need to be drawn up. As a general rule, a redundancy payment will be regarded as a windfall and will need to be offered to the IVA. The supervisor will determine how much (if any) the client can keep. Benefit entitlement may be affected by redundancy settlement, so all relevant information will be borne in mind.

Payment Break

If an individual is made redundant, it is important that monthly payments to the IVA are maintained, as a failure to pay could result in a failure of the IVA. With any change in circumstances, or where there are difficulties making payments, the IVA supervisor should be informed immediately so they can review the situation. It is possible that in exceptional circumstances, a payment break of up to 6 months may be granted. This will usually only be allowed once and the length of the IVA will be extended by the length of time deferred. Once employment has been found, there will be another review of the situation and it is often expected that any remaining redundancy pay will be paid into the IVA.