A MAJOR shake-up to debt rules could help those struggling in the cost of living crisis to get extra help and cut their repayments.
People on an Individual Voluntary Arrangement (IVA) could get their debt reduced if they can’t cope with repayments.
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The Insolvency Service has issued new guidance, encouraging IVA firms to help clients by reducing their repayments.
What is an IVA?
An IVA is an arrangement between you and your creditors, which is approved in court, to pay back your debts over an agreed period of time.
When you’re on an IVA, your creditors should not chasing you to pay your debts or charge interest on what you owe.
You’ll usually pay an agreed single monthly payment, though sometimes it’s a lump sum.
When on an IVA you must let your creditor know if your income increases and you can’t take out any new credit without permission.
An IVA is set up by an insolvency practitioner, which will charge you a fee for the service.
It can include a range of debts such as energy bills, council tax arrears, store cards, overdrafts, loans and more.
What is changing?
Usually, IVA firms can reduce your monthly debt repayments by up to 15% if you are struggling to cope.
Firms offer these reductions where those in debt can’t afford their repayments and the IVA is at risk of failing.
The reduction helps ensure the person in debt can continue to make repayments at a sustainable level.
But there are fears more IVAs could fail as the cost of living crisis ramps up, and households struggling to cope with soaring costs of essentials.
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Debt charity StepChange said: “The rising cost of living has increased the risk that IVAs could fail if people can no longer afford the payments.
“If an IVA fails before completion this can prove expensive for people and remove the protections they received under the IVA, so this is a situation that needs to be avoided as far as possible.”
The Insolvency Service has now issued new guidance to IVA firms, allowing them to reduce payments by up to 50% where required.
However, it’s worth bearing in mind, that when an IVA firm reduces your payments, it often extends the arrangement to make up for it.
The guidance, however, says that any extension should be no more than a year, and it should not extend to IVA to a total of more than seven years.
Sara Williams of debt help website Debt Camel, said: “This new guidance will help a lot of people who are currently struggling to pay their IVAs and wondering how they will be able to manage in the autumn when energy bills go up yet again.
“Some people may be able to get considerably lower payments, and others who are only making low payments at the moment, may be helped if their IVA firm agrees to their IVA being completed without them having to make any further payments.”
Can I get a reduction?
To be considered for a reduction, you’ll need to ask your IVA firm for a review – these are usually done annually but you can ask for one sooner.
How much of a reduction you qualify for will depend on your own situation.
If you are eligible for a reduction, your IVA firm will explain the situation to your creditors, which will vote on whether to approve a cut in repayments.
Where it looks as though an IVA may fail, the guidance said that firms should consider whether an IVA should be settled “on the basis of funds paid to date”.
This would mean that if your creditors agree, your IVA completes without you having to make any more payments.
StepChange added: “The new guidance should mean that more people are able to complete their IVA rather than see it fail.
“This is a very welcome and pragmatic development in light of the cost of living crisis.”
The Sun has approached the Insolvency Service for comment.
What are my other options?
An IVA may not be the best route for you if you’re in debt, so it’s always a good idea to seek advice before making any decisions.
One option is Breathing Space, a scheme that gets you extra time to get on top of your finances.
Under the government-backed scheme, you could get 60 days of breathing space where your creditors are unable to contact you, take action to make you pay, or add interest and charges to your debt.
Organisations such as Citizens’ Advice and StepChange can provide free, impartial advice if you’re struggling with debt.
We’ve rounded up a full list of places you can get free debt help.
You could also contact your local council to find out what support is available where you live and if you qualify.
We spoke to one savvy saver who managed to clear almost £13,700 in debt by overhauling his spending habits.
And another shopper racked up £40,000 of credit card debt but managed to pay it all off.
