IVA firms have fell under tremendous pressure, and as a result firms are offering three month holiday payments. They’re also offering 25% cut in repayments, which is a direct response to the Coronavirus crisis.
Due to Covid-19, people are finding it hard to pay IVAs, which is why they can request a 25 percent cut in repayments and a three month holiday.
An IVA, short for Individual Voluntary Agreement, is a plan that legally binds you with your creditors. The purpose is to help you pay your debts off over a period of time. The plan is approved by the courts.
Individual Voluntary Agreements must be set up of an insolvency practitioner, who is a professional that charges are £5,000. You make your repayments to the practitioner, and they pay the lenders. After five years, your debts are written off. This is regardless of your debts are repaid in full.
Up until a week ago, those who had an IVA were offered help, but only on a case-by-case basis. However, the current pandemic has left millions of people without work or furloughed. This is why special measures were put in place to help borrowers who are struggling. Similar actions have been taken for payday, mortgage, car finance and personal loan borrowers.
What Do The Measures Mean?
It means that new borrowers or those who already have Individual Voluntary Agreements can take repayment holidays for up to three months. Not only that, but borrowers can request further repayment holidays in the future.
Repayments can be reduced by 25 percent too. However, you’ll still have to pay the money back, which means repayments in the future will probably increase. The government did say that agreements cannot be extended by more than an additional year.
You must ask for the help if you need it because it’s not being offered automatically. Also, your practitioner will determine what help you should receive.
The measures will remain in place until October 20, 2020. Furthermore, if you are receiving redundancy payments as a result of the Covid-19 crisis, and your payments are in excess of six months of the pay you take home, then your practitioner will have to decide whether or not to use the cash to pay your lenders.
In normal circumstances, your creditors might have the right to claim cash you have came into during your IVA. This includes pension payments or any savings you might have accumulated.
However, practitioners are not allowed to take any of your home’s equity to repay debts you owed; At least not during the Covid-19 pandemic. The only exception is if you agree to allow it.
Does This Affect Credit Scores?
Credit scores won’t be affected by repayment holidays or reduced repayments, according to the three credit reference agencies in the United Kingdom. This is due to the Covid-19 crisis.
However, increasing your borrowing or applying for new products might still impact your credit score. Stopping repayments on your own accord might affect your credit score too.
Generally speaking, those with an agreement might struggle to get credit. This is because the IVA remains on credit reports for a full six years. Not only that, but you could go bankrupt if you fail on making your repayments.