If you are facing the prospect of being made redundant and you are already using either a DMP (Debt Management Plan) or IVA (Individual Voluntary Arrangement) to resolve your debt problem you will need to plan what to do when your income falls.
The options open to you will be different depending on whether you receive any redundancy money and if and when you feel you will be able to get a new job.
Options if you are made redundant during an IVA
If you are facing the prospect of being made redundant and you are already in an IVA (Individual Voluntary Arrangement) the first thing you must do is inform your IVA company and discuss your options with them as a matter of urgency.
There are a number of things you may be able to do depending on whether you receive any redundancy money and if and when you feel you will be able to get a new job.
Agree an IVA payment holiday
If you believe that you will only be out of work for a short period of time and once back in employment you will be earning the same level of income then you may simply need a couple of months payment holiday from your IVA.
An IVA payment holiday can normally be agreed with the payments you miss then added to the end of the agreement meaning that your ongoing payments remain at the same level.
Reduce your IVA payments with a variation
If you are able to get a new job but your income will be lower this will mean that you can no longer afford to pay your agreed IVA payments and you will need to discuss the option of reducing them.
If your new payments are no less that 10% than your original payments then your IVA company can reduce these without the agreement of your creditors. However if your fall in income is such that your payments have to reduce by more than 10% then your IVA company will have to formally ask your creditors to accept the reduction at a variation meeting.
Settle your IVA if you have redundancy money
If you have received a lump sum redundancy payment this is a windfall and you under the terms of your IVA it should be simply paid into the arrangement. However you may be able to use this money to settle your IVA in full if you have little or no prospect of getting another job any time soon.
If you need to keep some of the money to maintain your ongoing living expenses while you look for a new job then this might be possible but will have to be agreed with your IP.
Let your IVA fail and go bankrupt or start a DMP
If all else fails and you are simply unable to continue making your IVA payments you may have to stop paying your IVA altogether and let it fail. At the point your options will largely depend on how many payments you have already made into your IVA and whether you are a home owner with equity in your property.
If you have already made a large number of payments into your IVA it might be possible for you IVA company to settle the arrangement in full based on the payments you have already made. However this will only really be possible if you are already in the last year of your IVA payments.
If your IVA company is not able to settle your IVA based on the payments you have already made then it is likely that they will fail your IVA and then leave you to decide the next best course of action. At this point you will normally need to choose between starting a DMP or Bankruptcy.
BMD Tip: If there is considerable equity in your property there is a possibility that your creditors will ask your IVA company to make you bankrupt. However this unusual and normally only happens if one of your creditors is HMRC.
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Options if you are made redundant during a DMP
If you have been made redundant and are already in a DMP you should consider these options:
Settle your debt with redundancy money
If you have received a lump sum of money in the form of a redundancy payment it may be possible for you to settle your debt in full.
If you have already been paying your DMP for six months or more then each of your creditors will often agree to accept a settlement offer of between 40%-50% of the outstanding balance of your debt or even less if this can be paid as a lump sum.
You are not under any obligation to use your redundancy money to settle your debts in this way. However by doing so you may well be able significantly reduce the amount of your outstanding debt and the time it will take for you to become debt free.
Reduce your monthly DMP payments
If you have not received any redundancy money or simply do not want to use this for the repayment of debt then you will need to reduce the payments you are making into your DMP to fit your new budget.
One of the advantages of this type of plan is that you can reduce the payments you make at any time. You will need to submit a new payment offer to each of your creditors with a new income and expenditure statement to back this up. As soon as you get a new job and given that this means your income increases again, you can then increase your DMP payments.
BMD Tip: You should be aware that if you reduce the payments that you make into an existing DMP your creditors might start adding interest again in the short term until they have agreed the new amounts.
Let your DMP fail and go bankrupt
If after being made redundant you are simply no longer able to afford any payments towards your debts you will not be able to continue with your DMP. If you reach this point then a sensible option to consider is bankruptcy.
Bankruptcy will enable you to write off any outstanding unsecured debt that you owe and will not require you to make any further payments towards your debts if you cannot afford to do so.
BMD Tip: Bankruptcy can be an ideal solution if you are renting your home or are a home owner but have no equity in it. If you have equity in your home then you need to speak to a BeatMyDebt.com expert before using this option.