IVA and Universal Credit: What You Need to Know

Can you have an IVA while claiming Universal Credit?

There is no rule that bars you from an IVA because you receive Universal Credit. What matters is whether you can afford a worthwhile monthly payment for the full term, and whether your creditors will accept the offer. If you work part-time and claim Universal Credit to top up your income, an IVA may be possible. If your income is entirely from benefits and there is little or nothing left after essentials, an IVA is unlikely to be workable.

How benefits are treated

When a practitioner works out what you can afford, they look at your total income and your essential spending. Benefits that are meant to cover specific costs, such as housing support, are weighed against those costs. Some benefits, particularly those for disability or caring needs, may be treated differently from earnings. Each practitioner applies standard allowances for living costs, so the amount left to pay creditors is often small.

Another consideration is the effect of the payment on your benefit claim. Universal Credit is based on your income and circumstances, so a change in earnings or a lump sum can alter what you are paid. Tell the Department for Work and Pensions about any change, and ask your adviser how the IVA payments are treated.

Why an IVA is often unsuitable on benefits

• Little spare income: The payment has to be meaningful. If it is very small, creditors may reject the offer.
• Fees: The costs come from your payments. If payments are small, fees can swallow a large share. See IVA costs and fees.
• Length: The arrangement lasts years, and your benefit entitlement can change in that time.
• Cheaper options exist: A Debt Relief Order or bankruptcy may suit you better if you have very little income and few assets.

Options that often suit people on benefits better

1. A Debt Relief Order (DRO): Designed for people with low debts, low surplus income and few assets. The debts are written off after a set period if your circumstances do not improve. Check the current limits with a free adviser. See Debt Relief Orders.
2. A debt management plan: An informal arrangement with payments you can afford. If you can afford very little, creditors may accept token payments. See debt management plans.
3. Asking creditors to write off debt: Some creditors will consider it where there is no prospect of repayment, for example through hardship teams.
4. Breathing Space: A short pause on enforcement while you get advice. See Breathing Space.

Check you are getting all you are entitled to

Before choosing a debt solution, make sure you are not missing out on income. A benefits check can find entitlements you have not claimed, such as Council Tax Reduction, help with housing costs or disability benefits. GOV.UK has a list of benefits calculators. Extra income can change which solution suits you.

Debts and deductions from benefits

Some debts can be recovered directly from your benefits. For example, Universal Credit deductions can be made for certain debts, and these are capped at a percentage of your standard allowance. Overpayments of benefits are a separate case. Our guide to benefit overpayments and DWP debt explains your options. Priority debtsPriority and Non-Priority Debts ExplainedLearn which UK debts are priority debts, such as rent, council tax and energy bills, which are non-priority, and why the difference matters.Read more → such as rent, council tax and energy should come first in your budget. See priority and non-priority debts.

Where to get free help

Speak to StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, National DebtlineNational Debtline: How It Works, When to CallWhat National Debtline is, who runs it, what it can help with, how to get free advice by phone, webchat or online tools, and what to expect.Read more → or Citizens Advice. They look at your whole situation, including benefits, and can tell you which options you qualify for. They are free and do not push you towards a product. Our overview of free debt advice in the UK explains how to contact them.

A worked example

Take someone working part-time who receives Universal Credit and has £12,000 of credit cardHow Credit Cards Work in the UKHow UK credit cards work: interest, APR, minimum payments, interest-free periods, fees, Section 75 protection and how to use a card without getting into debt.Read more → and loan debt. After essential costs, they have £40 a month spare. An IVA payment that small would leave very little for creditors once fees are taken, and creditors might reject it. A free adviser might point instead to a debt management planDebt Management Plan (DMP)A Debt Management Plan is an informal arrangement to repay unsecured debts at a monthly rate you can afford. Learn how DMPs work, who they suit and what to consider.Read more → with token payments, or to a Debt Relief Order if the debts and assets fall within the limits. Now take someone on a similar benefit but with £300 a month spare after a pay rise: an IVA might be realistic. The same benefit can lead to different answers depending on what is left each month.

What to do before you decide

Gather your latest Universal Credit statement, payslips, a list of debts and a realistic budget. Use the budget to find out whether you are missing out on anything, then take the figures to a free adviser. Never agree to anything on the first phone call with a commercial provider, and never pay a fee before you have had impartial advice.