Hiding money from IVA: What you need to know

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Overview:

This guide will cover everything you need to know about hiding money from an IVA, including how an IVA works, what can happen if you hide money or assets, and what you should do if your circumstances change.

When you enter into an IVA, there are certain rules you must follow to ensure everything runs smoothly and you can exit your arrangement after five years. This includes being open and honest with the person overseeing your IVA.

However, while an IVA can help you write off a portion of your debt in exchange for making regular payments towards what you owe, it will only be successful if you follow the rules and fully commit to the process for as long as it takes.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between you and your creditors (the individuals or businesses you owe money to) to write off a portion of your unsecured debt in exchange for making monthly repayments towards your outstanding balance.

IVAs are legally binding, which means they must be approved by the court and you can face legal action for breaching the terms of your arrangement.

They can also only be set up and managed by an ‘Insolvency Practitioner’ (IP), who is a financial professional authorised to guide you through your IVA and communicate with your creditors on your behalf.

Most IVAs last five years (60 monthly payments) but your term can be extended by an additional 12 months (72 monthly payments) if you miss or reduce payments.

Because your repayments are based on a review of your income and expenses, you’ll also never be asked to pay more than you can comfortably afford.

How does an IVA work?

The main aim of an IVA is to help you juggle multiple credit agreements by streamlining your debts into a single monthly payment based on your income, expenses, and essential living costs.

For example, once your IP has reviewed your income and outgoings, they will use your disposable income (the amount left over) to work out how much your monthly IVA payment should be.

This will leave you with little money for non-essential expenses, like entertainment, socialising, and dining out, but it is designed this way to ensure you are contributing as much as possible towards your debt.

Once your final payment has been made, your remaining debt will be written off (cancelled) and you’ll be free to exit your arrangement and move on with your life.

Will an IVA damage my credit rating?

Like most debt solutions, an IVA will negatively impact your credit rating in a number of ways.

For example, your IVA will be listed on your credit score for six years from the date it was approved. During this time, lenders will be able to see you’re in an IVA and you’ll find it difficult to get approved for further credit.

Furthermore, you must get written permission from your IP if you want to borrow more than £500 at any point during your IVA. However, even if your IP grants you permission, there’s no guarantee that a lender will approve your application.

Because most IVAs last five years, your arrangement is also likely to end a year before it drops off your credit file and your credit rating will have already had a chance to recover.

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What is a windfall clause?

Most IVAs contain something called a ‘windfall clause’, but what exactly is it and how does it impact your arrangement? Put simply, a windfall clause is a chunk of information outlining what should happen if you were to come into a large sum of money (windfall) at any point during your IVA.

When you receive a windfall during an IVA, you must inform your IP as soon as possible who will more than likely ask you to put 100% of the money towards your arrangement. This could include an inheritance payment, lottery win, personal injury compensation, or even equity released from the sale of your home.

However, unless the windfall is large enough to cover your outstanding balance, you’ll still need to continue making payments as normal.

For example, if you owe £15,000 and receive a windfall of £10,000, £10,000 of your debt will be repaid and your balance will be reduced to £5,000.

What will happen if I’m caught hiding money from IVA?

When you’re in the initial stages of setting up your IVA, you may be wondering if it would be possible to hide money in a separate bank account or savings account so you have more to keep to yourself and spend on whatever you like. However, the way an IVA is set up can make it extremely difficult to hide money from your IP.

One of the first steps involved in the IVA process is reviewing your income and expenses with your IP. This involves giving them access to your bank accounts, bank statements, and savings accounts, and this is likely to unearth any money you’ve previously hidden or not disclosed.

Because an IVA is a legally binding agreement, there can be serious consequences for purposely hiding money and you can be served with a ‘breach notice’ or simply informed that your IVA has failed.

Once your IVA has failed, creditor protection will be lifted and you’ll become responsible for the debts included in your arrangement again. This means your creditors will be free to take legal action against you and you could be taken to court and issued with a court order or bankruptcy order forcing you to repay your outstanding balance.

Can I hide money before my IVA starts?

Some people think that if they hide money before their IVA officially starts, this is perfectly legal and shouldn’t have any impact on the outcome of their arrangement because it was done before they put their signature to anything. However, this is illegal and can still result in an IVA failure.

Because your IP will carry out a full financial health check before your IVA begins, they’ll most certainly find out about any money you’ve attempted to hide and you will be asked to pay it into your IVA. This can not only sever trust between you and your IP but your IVA could be at risk of failing before it even begins.

Remember, when your IVA fails, you will become responsible for repaying the debt and all protections placed on you will be lifted. This means your creditors will be free to take further legal action against you and you could be made bankrupt in a last-ditch attempt to force you to pay what you owe.

Can I hide assets from my IVA?

Though your assets will be protected during your IVA and you’ll never be asked to sell your home or car to repay your debt, it’s a criminal offence to hide anything from your IP that might affect your arrangement. This includes deliberately providing misleading or wrong information.

During an IVA, you’ll be asked to provide recent payslips and bank statements once a year as part of the annual review process. This is to ensure your financial situation hasn’t changed and your monthly payments are still accurate and reflective of your income, expenses, and essential living costs.

Furthermore, there are no rules saying your IP can’t check your financial situation as often as they like, so they may become aware that you’re hiding money from your IVA sooner than you think.

When your IVA fails for this reason, it’s not uncommon for your creditors to force you into bankruptcy. This can have further legal ramifications and more often than not, you’ll be forced to hand over control of your home and car, which can then be sold to repay your debts.

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What should I do if my circumstances change during my IVA?

Because most IVAs last between five and six years, it’s normal for your circumstances to change at some point during this time. However, failing to inform your IP of these changes constitutes a breach of your arrangement and your IVA could fail.

For example, if you lose your job, get a wage increase or decrease, receive a promotion or bonus, discover other debts, get a new job, accrue more debt, move home, or want to take money from your pension, you must inform your IP as soon as possible – especially if the change in circumstances means you can no longer make your payments in full, on time, or at all.

These changes can have a significant impact on your income and outgoings and, in most cases, your IVA will need to be amended to better reflect your new financial situation.

Remember, if your circumstances have changed and you’re struggling with your repayments, don’t hesitate to reach out for free debt advice. Whether you’ve missed a payment or lost your job, getting help and support as soon as possible can prevent your financial situation from escalating.

What else should I not do during an IVA?

As well as hiding money from your IP, there are various other things you should avoid doing during an IVA, such as:

Stop making repayments

During an IVA, it’s important to make repayments in full and on time to ensure you uphold your side of the agreement.

Because an IVA is legally binding, your creditors agree to stop pursuing you for the money owed in exchange for you making regular contributions to the debt.

Failure to make IVA payments as agreed will lead to your arrangement failing and your creditors will be free to start chasing you for the debt again. This will more than likely lead to court action and, in some cases, bankruptcy.

Borrow more money

Although there is nothing stopping you from applying for more credit while you’re in an IVA, it’s not always possible and you’ll need to convince both your IP and a lender that it’s the best solution for your finances at this time.

For example, you’ll not only have to seek permission from your IP to borrow more than £500, but you’ll struggle to find a lender willing to enter into another credit agreement with you while you’re in an active IVA.

Furthermore, only debts accrued before your IVA that you forgot to add can be added to your arrangement. So if you accrue further debt after your IVA is approved, it usually can’t be added to your arrangement and you’ll have to pay it off another way e.g. by arranging an informal repayment plan with your creditor.

Ignore your IP

The purpose of an IP is to help guide you through the IVA process and ensure you’re able to repay your debts and exit your arrangement as planned.

By ignoring your IP or failing to inform them of any changes in your circumstances, your IP will assume you no longer want or need an IVA and can cancel your arrangement with little notice.

When this happens, you’ll receive a ‘certificate of termination’ and ‘failure report’ confirming that the IVA is no longer active and that any protections you were placed under have been lifted. The failure report will also let you know what led to the IVA being terminated, how much of your debt was paid through the IVA, and how much you still owe your creditors.

Spend outside of your means

One of the key requirements of an IVA is sticking to a budget. Before your IVA proposal is submitted, your IP will go through your living expenses with you and help you create a budget for both essential costs (rent, groceries, and transport) and non-essential costs (entertainment, socialising, dining out).

Failing to stick to your budget or spending money on lavish or unnecessary purchases is not recommended and is only likely to lead to your IVA agreement failing once your IP finds out.

IVA budgets can be strict but your IP will usually leave some room for you to put some money into a savings account and treat yourself every once in a while so you can still enjoy your life.

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Conclusion

When you enter into an IVA, there are certain rules must agree to stick to. One of these rules is disclosing all your money and assets to the person overseeing your arrangement: your IP.

Attempting to hide money from your IP before or during your arrangement can be classed as a breach of your IVA and it will be terminated. When this happens, you will become responsible for the debt again and your creditors will be free to take further legal action against you.

Sticking to the terms of your IVA is crucial to be able to successfully complete your arrangement within five years. Some IVA loopholes claim that there’s a way to legally bend the rules, but this is risky and is only likely to lead to the termination of your arrangement.

Key Takeaways

An IVA is a formal debt solution where you agree to make regular repayments towards your unsecured debts
The main aim of an IVA is to consolidate multiple debts into a single monthly payment that you can comfortably afford
Most IVAs contain a windfall clause stating that any large sums of money received, such as inheritance payments or lottery wins, must be paid into the arrangement
Hiding money or assets from an IVA isn't an easy task and will constitute a breach of your IVA, meaning your arrangement is at risk of failing
As well as hiding money from an IVA, you should never stop your repayments, borrow more money, ignore your IP, or spend outside of your means
Maxine McCreadie

Maxine McCreadie

Author/Debt Expert

Maxine McCreadie, prominent personal finance writer featured in Vogue and Yahoo News, delivers practical guidance, simplifying money management and championing financial literacy.

How we reviewed this article:

HISTORY

Our debt experts continually monitor the personal finance and debt industry, and we update our articles when new information becomes available.

Current Version

April 25 2024

Written by
Maxine McCreadie

Edited by
Ben McCormack

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