Can I start a Debt Management Plan during an IVA?
If you borrow more during an Individual Voluntary Arrangement (IVA) the issue that you will face is how to repay the new debt. One option you may consider is using a Debt Management Plan to manage the debt which you run alongside your IVA. However you will have to overcome some considerable issues if you try to do this.
The problem with starting a Debt Management Plan during your IVA
In theory it is possible to start a Debt Management Plan to manage new debts that you have incurred while you are in an IVA. The plan is an informal agreement and simply involves offering reduced payments to the new creditors based on what you can afford.
However if you try to do this you are going to have the very real problem of finding sufficient cash to maintain sensible payments into the plan. Remember you should be paying all of your surplus income into your IVA. This means you will only be able to pay a Debt Management Plan if you can manage to make any savings from your living expenses budget. This is likely to be very difficult.
DM4U Tip: One way that you might be able to pay a Debt Management Plan alongside your IVA is if you are able to increase your income in some way. If you can do this then 50% of your extra income will normally have to be paid into your IVA. However you could use the remaining 50% to pay your new Plan.
Should you let your IVA fail and then start a Debt Management Plan?
If you are not able to find any extra money to make payments towards your new debts another option you can consider is to allow your IVA to fail. You could then deal with all of your outstanding debts using a new Debt Management Plan. However there are some significant issues with this idea.
The main one is that it is likely that it will take far longer to repay your original debts using Debt Management rather than an IVA. This is because you will have to pay all the debt. Non of it will be written off as it would have been in your IVA. In addition a DMP gives you no legal protection from your creditors. They may therefore start adding interest to your accounts once again.
It is possible to add new debt to your IVA?
If you borrow more during an IVA rather than trying to pay it back it might be possible to add it to the Agreement. However to do this you will have to get the agreement of your Insolvency practitioner and your original creditors. This is not likely to be easy. They might be very unhelpful and simply say that you have to repay the debt or they will have to fail your Arrangement.
If this happens you could ask you Insolvency Practitioner for a payment holiday from your IVA. You could then use the money you save by not paying the Arrangement to pay off your new debt. However if this is not allowed you may feel you have little choice than to try and set up a Debt Management Plan to pay your new debts alongside your Arrangement.
If you do not think you will have enough spare cash to do this then as a last resort you could allow your IVA to fail and declare yourself bankrupt. All of your old and new debt will be included and any monthly payments you are asked to pay towards your debt will only last for 3 years.
If you have not yet paid more than 2 years into your IVA Bankruptcy could be a very appealing option as you will pay less overall. However if you are a home owner with significant equity in your property it is advisable to take expert advice before considering this option.
DM4U Tip: If your IVA company will not help you add your new debt into the Arrangement sometimes just threatening that you will go bankrupt will be enough for them to reconsider.
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