Bank accounts, savings and pensions - impact of an individual voluntary arrangement
An Individual Voluntary Arrangement (IVA) is a formal and legally-binding agreement between you and your creditors to pay back your debts over a period of time. An IVA must be set up by an insolvency practitioner.
An IVA can be flexible to suit your needs but it can be expensive and there are risks to consider.
This page tells you how an IVA may affect your bank account, savings and pensions.
If you get an IVA, you may need to change your bank account while the IVA is being set up. This is because your bank may be able to automatically take money from your account to pay any unpaid debts. This is called the 'right to offset'. A bank can only do this if your bank account is linked to the company you owe the debt to.
If your bank is linked to your debts, you need to switch your bank account. That way, your income will be safe.
If your bank account has no links with your debts, you won't need to change it.
If you decide to get an IVA, your insolvency practitioner will be able to advise you about this.
How do you know if your bank account is linked to your debts?
Your bank account may be linked to one of your debts in the following ways:
- if you have a loan or credit card debt and a current account with the same bank
- your loan or credit card debt is with another company, but that company is owned by your bank
- your bank and the creditor are owned by the same umbrella company.
►You may be able to find out if your bank account is linked to your debts at: www.payplan.com/debtadvice.
If you have savings, you usually have to include these in your IVA, either by paying your creditors a lump sum or using the money to make monthly repayments.
If you're getting your state pension, it will be taken into account when you work out how much you can afford to pay into an IVA.
Personal or occupational pension
If you receive an income from a personal or occupational pension, it will be taken into account when you work out how much you can afford to pay into an IVA.
If you receive a lump sum as part of a personal pension, you may need to agree to pay this into your IVA.
If you are still paying money into your personal pension, creditors may ask you to stop paying into the pension and use the money to pay them instead. You would have to do this for the length of the IVA, usually five years. However, IVAs are flexible and if it's vital you continue to pay into your pension, it may be possible to compromise. Your insolvency practitioner can advise you about this.
You’re over 55 and have a defined contribution pension
If you’re over 55, have a 'defined contribution pension', and haven’t started taking money from your pension pot, your creditors probably won’t expect you to access it to pay money into the IVA, although you could choose to do so. If you start to take money from your pension pot during the term of the IVA, this will count as income and you may have to pay it into the IVA. Your insolvency practitioner will advise you on this. You should get advice from an independent financial adviser before agreeing to use your pension savings.
You could choose to cash in some of your pension to raise a lump sum for an IVA. However, this would leave you with less money to live on in retirement. It could also mean your creditors get access to the rest of your pension pot. You should get advice from a financial adviser before using your pension to pay off debts. A ‘defined contribution pension’ is based on how much has been paid into your pot, not your salary near retirement.