You may be able to save money during your IVA. If so can you keep it or will it have to be paid into the Arrangement?
- Are you allowed to save during an IVA?
- What is the point of Saving?
- Rather than save should you increase your IVA payments?
- Using savings to settle an IVA early
Are you allowed to Save during an IVA?
When you start an IVA your living expenses budget is agreed with your creditors. This is the money that it is accepted you need to live on.
After the Arrangement is in place your monthly spending is not monitored. It is down to you to manage the cash you have available. You are responsible for paying your bills and other regular expenses.
Given this if you are careful it may well be possible for you to spend less than the budgeted amounts. Any money you do not spend each month you are allowed to save. It does not have to be paid to your creditors.
You cannot be forced to pay into your IVA any money you save from your agreed living expenses budget.
What is the point of Saving during an IVA?
Unexpected expenses always come up. A home appliance such as your washing machine or TV might go wrong. Alternatively you might have a car repair bill that is higher than planned.
If you have some money saved dealing with these issues is far less stressful. They can simply be paid for. If you do not have anything put aside your only option may be to take a payment holiday from your IVA.
It is possible to take a payment holiday during an IVA. Rather than making your normal payment you use the money to cover the unexpected expense. The missed payments are added to the end of the Arrangement.
In reality most people in an IVA should save something each month. This is because some items of the expenses budget are not paid monthly. These should be saved until needed. For example a car maintenance or emergency allowance.
Rather than Save should you increase your IVA payments ?
You may think it would be better to simply increase your IVA payments rather than save. However this is not the case
Increasing your monthly payments will not mean the Arrangement is paid any faster. It lasts for the same length of time. Any extra you pay will simply increase the amount your creditors get back overall.
You may feel that you should do everything you can to pay back more of the money you owe. This is admirable. However it is better to hold on to any money you save. You will then be better able to manage unplanned bills as and when they come up.
If your income increases you are not automatically allowed to save this money. Your disposable income will have to be recalculated and your IVA payments may then increase.
Using Savings to Settle an IVA Early
It is possible to settle an IVA early. This can be done by offering a one off cash lump sum. Once it is paid the ongoing monthly payments cease.
The cash required to make an early settlement will normally come from a third party. However there is no reason that it should not come from money you have managed to save during the Arrangement.
The amount require to settle an IVA is normally equivalent to the total of the remaining monthly payments. However a small discount can be applied recognising the benefit of early payment.
In reality the money you are able to save during your IVA may never in itself be enough to settle early. However it could be used to reduce the amount that would otherwise have to be raised from a third party or by remortgaging.