If you owe money to a payday loan company, doorstep lender or similar, we consider whether you can include these debts in an IVA.
If you are struggling to pay your debts, one of the solutions which you should consider is an individual voluntary arrangement (IVA).
An IVA allows you to settle your debt in a fixed period (normally 5 years) based on a single monthly payment which you can afford.
However with more and more payday loan companies such as Quick Quid and Wonga.com advertising their services, it is increasingly possible that one of your outstanding debts will be to a payday loan company.
Payday loan debts are different to a normal credit card or personal loan because they tend to be for smaller amounts paid back weekly with the money taken directly from your bank debit card.
Nevertheless, they can still be included in your IVA.
Must payday loans be included?
If you then get to a point where you have to implement an individual voluntary arrangement, all of your unsecured creditors must be treated in the same way.
This means that even money owed to payday loan companies like Wonga or doorstop lenders such as Provident should be included as these agreements are all unsecured.
The amount you owe to them may be small. However the total repayments that you make over the course of a month are relatively large compared to your other debts.
As such, even if you were allowed to leave them out, trying to maintain the weekly payments to a payday loan would almost certainly make paying your IVA impossible.
Stopping your payments to a payday loan
Once you start the IVA application process, you will normally stop making further payments to all of your unsecured creditors.
However, stopping the payments you have agreed to make to a payday loan company may not be straight forward. Very often you will have agreed that payments should be taken directly from your bank debit card.
The surest way to stop these payments from being taken is to cancel your card.
To avoid further questions, the easiest thing to do is tell your bank that your card has been lost and that you require a replacement. They will then cancel the card immediately preventing any further payments from being drawn from it.
If you do not manage to cancel your card and payments are made do not worry.
To stop any further risk of money being taken from your bank account which you do not authorise, you will also normally need to open a completely new account and use that from now on.
Any outstanding overdraft on your old account which may have been increased because a payday loan payment has been made will be included in your IVA in the same way as all of your other unsecured creditors.
Payday loans are not a debt solution
If you are already struggling with your finances and are unable to maintain your debt repayments, trying to borrow your way out of trouble rarely works.
It is extremely tempting to borrow more money from a payday loan company particularly if you feel that if you could just get through the next few weeks, things will be different next month.
However, unless you are expecting a significant increase in your income or drop in your living expenses your debt problem will generally just get worse.
As such, if you find yourself in a position where you cannot pay your debt, it is not a sensible idea to turn to a payday loan or doorstep lender company at all.
However, if one of your creditors is a doorstep lender or payday loan company and you decide that you want to propose an IVA to your creditors, this is not a problem. They can be included in the agreement in exactly the same as your other unsecured debts.
Related IVA articles
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