Can I go on holiday while I am in an IVA?

With the summer holiday season ready to start we consider whether it is right to spend time and money taking a break if you are in an individual voluntary arrangement.

An individual voluntary arrangement (IVA) is an agreement with your creditors to settle debt that you cannot afford to repay.

The arrangement normally involves living within a reasonable expenditure budget so that as much as possible can be repaid to creditors over a fixed period of five years.

Given the definition of an IVA, at first glance, it seems ludicrous that someone with an IVA should be allowed to spend any of their money on seeming luxuries such as a holiday. However, by doing so it may actually help get a better return for creditors.

Not a prison sentence

The main objective of an individual voluntary arrangement is to return as much of the outstanding debt to creditors as possible.

This requires someone in an IVA to live within an agreed budget. However it is extremely important that the budget is not so tight that some elements of normal life cannot be maintained.

If a budget is set which is simply too restrictive, trying to stick to it is neigh on impossible.

For a short period, such a strict budget may be achievable, however trying to live on the breadline for up to five years can often result in people feeling that the sacrifice they are making is simply too high.

In these circumstances, the person in the IVA may give up and stop making their payments. As a result the arrangement will fail and the individual may well declare bankruptcy. In this situation the return to creditors will be far less than the successful IVA would have achieved.

Having the flexibility to live in part a normal life can prevent this situation from happening.

How to pay for a break

No budget is specifically allowed within an IVA for paying for a holiday.

However, it is very important to set the budget correctly at the beginning of the arrangement to allow for a degree of flexibility.

This does not mean that there should be items in the expenditure budget that are not needed. However there should be elements available for unforeseen expenditure and emergencies.

There is no reason why once your budget is agreed you cannot save any spare money not required for everyday living expenses. These savings can then be used for paying things unexpected events or small luxuries such as a modest holiday.

This practise will ultimately encourage a successful completion of the arrangement.

If you enter into an IVA, it is because you owe money that you are unable to repay.

It is only natural to feel that you must live on the absolute bread line in order to repay every penny you can to your creditors.

However laudable, this situation rarely works and often leads the IVA to fail because it is simply impossible to live within such tight constraints. If your IVA fails, the next step could be that you deciding to declare bankruptcy leaving the creditors with nothing.

On reflection it is therefore far better to have a certain amount of flexibility in an IVA living expenditure budget. The money which is saved through this flexibility can be used for a holiday giving you and your family a much needed break.

In my opinion, if an IVA is not run in this way, the agreement is doomed to fail.

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