As a legally binding agreement between you and your creditors, it’s important that you declare all of your income if you choose to use an Individual Voluntary Arrangement to repay your debts. Hiding money from IVAs can lead to serious consequences.
In this guide we’ll explore the idea of hiding money from an IVA, including how you make your IVA payments, how the windfall clause works, and what might happen if you try to hide money from your creditors.
What is an IVA?
Lots of people owe money to creditors like banks and phone companies, and it’s not uncommon for this unsecured debt to reach a level where an individual is unable to repay what they owe. This can be extremely stressful, and can even lead to threats of legal action.
An Individual Voluntary Arrangement, more commonly known as an IVA, is a legally binding arrangement between an individual and their creditors which allows them to repay their debts via a series of affordable monthly payments.
Available in England and Wales, an IVA is a debt solution that transforms all your unsecured debts – like credit card debts, payday loans, and unpaid energy bills – into a single monthly payment that’s based on what you can afford, and allows you to write off the debts you can’t afford.
How we helped Paige
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
How does an IVA work?
Instead of attempting to juggle payments to several creditors at once, an IVA will turn all your unsecured debts into one affordable monthly payment based on your monthly income, expenditure, and other essential living costs.
This monthly payment will be reviewed regularly to make sure it remains affordable for you throughout the length of your arrangement.
You will make a monthly payment towards your debts for five or six years, and once your payment term is complete any remaining debt not taken care of by your monthly payments will be written off by your creditors.
How do you make IVA payments?
Automatic deduction from your bank account
You won’t have to make your monthly repayments manually. Whichever IVA provider you go with will take care of your payments, usually lifting them directly from an elected bank account each month.
They typically use a system known as RCP – or Recurring Card Payment – to manage this process. That means all you have to do is make sure there is enough money in your chosen bank account each month.
Not only does a recurring payment take away some of the hassle of managing payments manually, but your IVA provider having direct access to your bank account will also make hiding money from your IVA more difficult.
Who pays off my creditors?
When you agree to enter into an IVA, you will work alongside a debt professional known as an Insolvency Practitioner. It’s their job to help you draft your IVA proposal, the document that outlines the terms of your future IVA, and share that proposal with your creditors.
If your creditors approve your IVA agreement, your Insolvency Practitioner will act as the administrator of the agreement. Part of that job includes making sure that the money you put towards the arrangement is shared fairly amongst your creditors each month.
What is the windfall clause and how does it affect my IVA payments?
A lot of IVAs come with what’s known as a windfall clause. The windfall clause essentially puts in writing the fact that any additional income, monies, or windfalls (i.e. a lottery win or inheritance) needs to be put towards your arrangement.
If you want more information on what kinds of events count as a windfall, or you’re interested to know exactly how much of your windfall will need to be paid into your IVA, you can get in touch with your IVA provider.
For the avoidance of doubt, however, if you ever come into an extra influx of cash during your IVA, the best course of action is for you to contact your providing and declare the extra earnings immediately.
Can you pay off an IVA early?
It’s possible to end your IVA early using what’s known as a full and final settlement offer. A full and final settlement is a lump sum of money that you can offer your creditors so that it can be put towards your debts. If your creditors accept your proposal, your IVA will end early.
It’s up to you to decide how much money to offer your creditors. How much that is depends on various factors, including who your creditors are, how big the lump sum is, and your chances of being able to pay off the full amount over time.
You shouldn’t offer to pay the full amount in your settlement – if your lump sum is large enough, your creditors are likely to agree to a debt write off for the remaining money you owe.
That said, you should offer as close to your total debt as you can afford. By agreeing to a settlement offer, your creditors are accepting a loss on your debts- the closer the offer is to the total amount you owe, the more likely each creditor will be to accept your offer.
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What happens if you are caught hiding money from IVA agreement?
Because an IVA is a legally binding agreement, you are required by law to live up to the your side of the contract that you sign when your first set up the arrangement. Part of that contract is that the IVA provider will have visibility over your accounts.
You will be expected to go through an income and expenditure process at the start of your IVA, and periodically throughout the arrangement. This involves giving the provider access to your income, bank accounts, bank statements, and savings accounts.
That doesn’t mean all your money will be put towards the arrangement – your payments will still be based on what you can afford, but your IVA provider won’t be able to provide an accurate account of your affordability without having access to all of your income and outgoings.
This makes it difficult for you to hide money from your arrangement, but if you do try to keep money aside, there can be serious consequences. Firstly, it constitutes a breach of your contract, so your IVA is likely to ‘fail’.
When an IVA fails, you will still be responsible for all of the unsecured debt included in the arrangement, so it’s not uncommon for your creditors to force you into bankruptcy. There could also be legal ramifications, including being taken to court over unpaid debts, all of which means it’s usually easier just to maintain your repayments.
Where can I get more info on IVAs and other debt solutions?
If you owe money you can’t afford to repay an IVA might be a useful way for you to get back in control of your debts and turn your financial situation around.
At Your Debt Expert, we’re experts in IVAs and other debt solutions. Our team can help you understand the debt relief options available to you, and help you pick the debt repayment plan that best fits your circumstances.
For simple, trustworthy debt advice, talk to one of the friendly advisers at Your Debt Expert today.