Seasonal Income and IVAs
IVAs work by repaying your creditors in regular, monthly instalments, so it is understandable that you might be unsure how to manage these payments if you are self-employed. Fortunately, if you decide an IVA is right for you, there is nothing to stop you from entering into one as a sole trader – in fact, IVAs were originally designed to help businesses struggling with debt to get back on track. The process of setting up an IVA for someone who is self-employed can be a little more complicated, but, fortunately, the solution is equipped with enough flexibility to allow you to continue trading whilst dealing with your debt.
Calculating Monthly Contributions
Like all IVAs, the amount you repay your creditors each month in a self-employed IVA is calculated entirely based on what you can afford. Working this out can be tricky if your income varies from month to month, but it is still possible. When your IVA is first being set up, you will work with a licensed Insolvency Practitioner (IP) to calculate how much you could afford to pay after your essential business and living costs each month. Your IP will also help you to compile a one-year projection for your business, based on past profits. Most sole traders’ incomes will fluctuate from month to month, but in certain professions income will vary dramatically based on the season. If this is the case for your business, you may be asked to pay more in some months than others.
If, at any point during your IVA, you think you will be unable to meet the month’s payment, it is important to get in touch with your IP as soon as possible. Payments can usually be adapted on a month-by-month basis, so keeping in touch with your IP is the best thing you can do to make sure the course of your IVA runs smoothly. You should also be able to take payment breaks if necessary – these payments are usually just added to the end of your plan. As with all IVAs, if the payments prove too much for a number of months, you may be able to renegotiate consistently lower payments with your creditors. Creditors are likely to agree to reduced payments if they would still receive more of what they are owed that they would by selling your assets through bankruptcy.
Although self-employed IVAs offer considerable flexibility, they can still fail if you consistently miss payments, especially without advising your IP. This is why it is so essential to make detailed projections at the beginning of your IVA.
If you think a self-employed IVA might be the right solution for you and your business, and would like more help and advice, call Creditfix today on 0808 2085 198.