IVA Individual Voluntary Arrangements For Mums

Are you a single mum and struggling with your finances to the point that they are now out of control?

Do you worry about how you will be able to continue providing a stable home environment for your children?

Like many UK single mums, you are experiencing similar issues, and financial solutions exist. Continue reading to learn more about the challenges facing single mothers and financial solutions such as IVAs.

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What Financial Challenges Do Single Mums Face?

Maintaining a strict budget to run a household with children is essential for a single mum. Potentially, only one source of income, if no spousal maintenance is available or just relying on government benefits, will result in a challenging financial environment.

Unexpected costs and the pressure to provide enough food and adequately clothe your children can present substantial economic challenges that will soon spiral out of control if you do not have discipline.

Why do Single Mothers have Financial Problems?

Spending behaviour is the number one cause of financial problems for single mothers. With no plan to manage the monthly budget, money can evaporate unnecessarily.  

A monthly budget includes setting aside money for:

  • Groceries
  • Household bills
  • Unexpected costs, such as replacing household appliances
  • Children’s clothes, shoes, and school uniforms
  • Existing unsecured loans
  • Travel costs

Finances can quickly become unmanageable for mothers who do not adhere to a monthly budget. If this is the case, it is vital to analyse their spending habits to get to the root of their problem.

It is essential to differentiate between necessary purchases and what constitutes a luxury purchase. You can do this by manually tracking every time you spend money or using a spending app on Google Play or the App Store. After a month, it will give you a clear indication of where your money goes.

If you have left it too late and your debt repayments are already uncontrollable, it may be time to consider a debt management solution.

How An IVA Could Radically Reduce Your Debts

What is an IVA, and how does it work?

An IVA is a formal arrangement agreed in a court of law to pay back a pre-agreed debt to your creditors over a fixed period.

To implement an IVA, an insolvency practitioner’s services are mandatory. The practitioner will create a Statement of Affairs that includes monthly income, assets, and liabilities. Then, a proposal is made to creditors to pay back a reduced amount of debt, which can see as much as 80% of the outstanding amount written off.

As A Single Mum Is An IVA Appropriate For Your Situation?

An Individual Voluntary Arrangement may not be relevant for your situation, and either a free debt service such as CAB or the National Debt Service, or an insolvency practitioner will be able to provide guidance.

Generally, there are four essential criteria to meet to qualify for an IVA:

  • After you have paid all your bills and living expenses, an Insolvency Practitioner will insist that at least £50 of surplus income is available to make a monthly IVA payment.
  • You must have outstanding debt to at least two lenders to implement an Individual Voluntary Arrangement.
  • An IVA can be set up with debts as little as £7,000. Due to the fees associated with an IVA, however, to make it a cost-effective solution, it is not recommended to set up an IVA for less than £10,000
  • An IVA is a solution if you are unable to pay back your unsecured debt in a time frame that is not deemed acceptable.

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Are There Any Other Options Available?

An IVA may not be appropriate for your circumstances, and other debt solutions are available. Again, seeking guidance before agreeing on any financial management plan is vital. Debt advice is available from Citizens Advice and the National Debt Service.

Debt consolidation 

Is taking all your outstanding loan payments and amalgamating them into one single payment. The aim is to reduce your regular payments through either a lower interest rate or extending the duration of borrowing.

A Debt Management Plan

A DMP is the negotiation of your debts with your creditors by a debt management provider who will attempt to negotiate the debt into one lower monthly payment. A DMP has similarities to an IVA but is an informal agreement and not approved by a court of law. It means that creditors can still take further legal action.

Bankruptcy 

It is often considered the final option if your debts are out of control. It is a declaration of being unable to service your debts. It is quicker to put in place than an IVA, but it can also mean you lose your home and other assets as your finances pass over to an official receiver.

A Debt Relief Order

or DRO shares standard features with bankruptcy but is for those with no assets, very little supplementary income and less than £15,000 of outstanding debt. A DRO provides a payment break towards any debt for a year as an initial attempt to see if your circumstances improve, beyond which any outstanding debt is written off.

What Is The Duration Of An IVA?

  • An IVA is structured to last for five years (60 months). It can end earlier if you can provide a lump sum payment to your creditors if you receive a financial windfall. Conversely, in certain instances, it can be extended for 12 months to permit you to make the payments set out in the IVA.

How Much Debt Can You Write Off With An IVA?

Your Insolvency Practitioner will know how much they can expect your creditors to accept when they present a financial proposal to pay back your debts. Reduced monthly payments in an IVA can be as low as 25% of the outstanding debt and as high as 80%. The IVA will typically include unsecured rather than secured debt. It includes personal loans, credit cards, bank overdrafts, utility bill arrears and doorstep or payday loans. Secured loans such as mortgages and other obligations, such as student loans, must be paid outside of the IVA framework.

What Are the Consequences of an IVA?

Suppose your creditors successfully accept your proposal for an IVA. In that case, it is still not all plain sailing, and there are consequences associated with having a plan in place, which include:

  • You cannot apply for new finance above £500 during the IVA.
  • The Insolvency Service will record your IVA on the IIR (Individual Insolvency Register), which can be accessed by the general public and contains personal details of those with an IVA against their name.
  • Your job may be at risk if you enter an IVA; checking your employment contract before applying is vital to prevent this.
  • If you miss any payments, the Individual Voluntary Arrangement extends to make up the shortfall.
  • Your credit rating is affected from the date the IVA commences. It will remain on your credit file and impact your credit score for six years.
  • For the IVA term, you must adhere to a pre-agreed budget set out in terms of the IVA.
  • If you receive additional income or a bonus from your employer, your Insolvency Practitioner may insist that you pay this into the IVA in addition to your monthly contribution.

What Happens to Any Assets I Own if I Get an IVA?

  • When you enter an IVA, your appointed Insolvency Practitioner will ask for a list of any assets as part of the Statement of Affairs. However, this does not mean that your assets will necessarily be included in an IVA.

Every IVA is specifically tailored to your circumstances, and you will usually keep assets such as your house and car. If you own two vehicles, you must justify this with the Insolvency Practitioner, who may insist you sell one vehicle and pay the proceeds into the IVA.

Further assets received, such as an inheritance, need to be declared to the Insolvency Practitioner throughout the IVA, who will assess whether any asset’s value needs to be paid into the IVA.

  • You cannot apply for new finance above £500 during the IVA.
  • The Insolvency Service will record your IVA on the IIR (Individual Insolvency Register), which can be accessed by the general public and contains personal details of those with an IVA against their name.
  • Your job may be at risk if you enter an IVA; checking your employment contract before applying is vital to prevent this.
  • If you miss any payments, the Individual Voluntary Arrangement extends to make up the shortfall.
  • Your credit rating is affected from the date the IVA commences. It will remain on your credit file and impact your credit score for six years.
  • For the IVA term, you must adhere to a pre-agreed budget set out in terms of the IVA.
  • If you receive additional income or a bonus from your employer, your Insolvency Practitioner may insist that you pay this into the IVA in addition to your monthly contribution.

Unless disciplined, finances can quickly become unmanageable for a single mum, putting both mum and family under pressure. It may be possible to get your finances checked through budget planning before damage is done.

However, it may be time for a mother struggling with debt to consider a debt management plan to address your outstanding loans head-on. A debt adviser from the National Debt Service can provide proper advice on the path forward.