iva rules for creditors

IVAs are responsible for pulling thousands of people out of debt every year.

However, they do come with their own set of restrictions that you should definitely keep in mind before you consider applying for an IVA.

One of these restrictions includes the amount of credit you can obtain. 

You may find that it’ll be difficult for you to obtain a credit card during an IVA.

In other cases, if you already have a credit card, you may be restricted from taking out further credit and credit card companies may refuse to offer you their best interest rates as well. 

Can I Keep Using my Credit Card During an IVA?

During your IVA, you are not allowed to keep using your credit card and you are also not allowed to take out a new one. 

Over the course of your IVA, you are not allowed to take out a credit larger than £500. If you absolutely require a credit larger than £500, then you will have to speak to your insolvency practitioner (IP) and ask for their permission before you can seek credit. 

Please note that if you do not inform your IP before you seek credit then this will be in direct violation of the terms of your IVA. This could lead to the termination of your IVA in which case, you would still owe your debt to your creditors and you’d have to devise a new repayment plan from scratch. Not to mention that legal action might be taken against you by your creditors as well. 

Like we mentioned before, if you encounter an unexpected expense for which you need to take out credit (e.g., a health emergency or a vehicle repair you need for your business), you can talk to your IP about it. If they feel that it’s a reasonable request, they will grant you permission to take out credit larger than £500.

Here are some of the factors that your IP will look at when considering whether or not they should grant you permission to take out a larger credit: 

  • Whether the credit is absolutely necessary or not.
  • In how much time will you be able to repay the credit.
  • Whether you will be able to make credit repayments on top of your current monthly IVA repayments or not. 

Even if your IP does grant you permission to take out credit, this credit may difficult for you to obtain since your ongoing IVA will be visible in the Individual Insolvency Register as well as your credit file. 

iva credit card

What are Some Alternatives to Using my Credit Card During an IVA?

There’s really no alternative when it comes to seeking credit during an IVA. You will have to live a very simple life over the course of your IVA; only making expenses that you absolutely need to and paying the rest in your monthly IVA payments. 

Like we mentioned before, you CAN seek credit during an IVA but you better have a good reason for it. If your IP or your creditors feel that the credit is unnecessary, they will not allow you to take it out. 

Many people believe that they are violating the terms of an IVA because they owe a debt to their utility provider for gas or electricity. This is not true, however. While these debts ARE a form of credit, they don’t violate the terms of your IVA agreement. This is only true if you’re maintaining your monthly IVA payments though. 

You may also be considering borrowing money from friends and relatives. While this may seem like a good idea, you would still have to pay this money back and in the end, it could affect your monthly IVA payments. Furthermore, your creditors may find out about it and ask you where this money came from. They could then even ask you to transfer it to them as a windfall sum. 

Thus, in most cases, if you require credit, your best bet is to contact your IP, discuss your situation with them and seek their advice. 

Credit After an IVA

Credit after an IVA can also be surprisingly difficult to obtain.

Your IVA remains visible on your credit file for six years after the start of your IVA. For a standard five-year IVA, this means that it will stay in your credit file for a further year after completion. The mention of an IVA will definitely make it very difficult for you to obtain credit from high-street lenders. 

It’s a good idea to make a request for your IVA completion certificate as soon as you make your last monthly payment. Once you have your IVA completion certificate, you can present it to your lenders to ensure them that you’re done with your IVA even though it’s appearing in your credit file. This will develop goodwill between you and your potential lenders and might increase your chances of securing credit.

In all cases though, it’s best if you wait till the mention of an IVA is completely erased from your credit file before you start seeking credit.

Once you do secure credit, it’s essential that you make your payments on time. This will be the pinnacle of you starting to rebuild your credit score which will ensure that you don’t end up in debt again. 

If you require credit sooner, however, then you should definitely consider a credit union rather than a high-street lender. You’ll have much better luck securing credit with them. Credit unions can also be a great source of credit when your IVA is ongoing. 

For more information on securing credit after an IVA, you can opt to contact an independent debt charity such as StepChange. They could make you privy to lenders that you may have not been aware of.

Conclusion

IVAs make it very difficult to take out credit during them and even sometime after them. That being said, you will be accommodated for if you absolutely need to take out credit to sustain yourself. 

The important thing to note is that when you need to do so, you should communicate your need to your IP and seek their guidance. Acting alone is a very bad idea and would most likely land you in a worse position than you were initially.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
×
×4 Question Debt Write Off Calculator SEE IF YOU QUALIFY