It is common for your income to change during an IVA. It is possible that your wages or other forms of income will go up or down.
List of article contents:
- What if your income goes up during an IVA?
- What happens if you receive a Windfall?
- The impact on your IVA if your income falls
- Options if you lose your job entirely
What if your Income goes up during an IVA?
Your income could increase permanently during your IVA. This change could be the result of a pay rise you have been given by your current employer. Alternatively you may have got a different job.
The affect of this may be that your payments have to go up. However this does not happen automatically. First of all your disposable income has to be reviewed.
If this has gone up 50% of the increase has to be added to your payment. For example an increase from £150 to £200 a month would result in your monthly payment going from £150 to £175.
You may get a temporary increase in income. Perhaps because of unexpected overtime or a one off bonus payment. 50% of the increase to your disposable income in that month will have to be paid into the Arrangement.
If your IVA payments go up this will not reduce the length of the Arrangement. You still have to make the same number of payments. The effect of the change is simply that you will pay back more of your overall debt.
What happens if you receive a Windfall during an IVA
A windfall is normally unrelated to your income. It is a one off cash lump sum that you receive for a particular reason. This could be inheritance, a compensation payment or even a lottery win.
As such the 50% rule used when your income increases is not applied. Instead 100% of any windfall you receive must be paid into your IVA.
Paying this extra money into your IVA will not reduce its length. The only time this would happen is if the sum received is so large it enables 100% of your original debt to be repaid plus IVA fees and interest charged at 8% from the start date of the Arrangement.
Depending on the terms of your IVA you may be able to keep the first £500 of any windfall.
The impact on your IVA if your Income falls
You could have a temporary fall in your income. This may be due to a period of illness. Alternatively you may lose your job but be able to find alternative employment relatively quickly.
In these circumstances it is possible to take a break from your IVA payments. With the agreement of your Insolvency Practitioner (IP) they are suspended. They start again after your income goes back up to normal.
Your income may have gone down permanently. Perhaps you get a new job with a lower wage or overtime you have been used to is taken away. The option of reducing your ongoing payments must then be considered.
Your IVA company may be able to reduce your IVA payments as long as the Arrangement is still sustainable. However you will normally have to accept an extension of the agreement for 12 months.
What if you lose your Income entirely
If your income stops altogether it is possible that you will no longer be able to pay anything towards your IVA. This may mean the agreement will fail.
If this happens it is possible that a considerable amount of the debt you originally owed will remain unpaid. As such you will need to make arrangements to deal with it in a different way.
If you have been made redundant and receive a payout you will normally be allowed to keep the equivalent of 6 months take home pay. This is to allow you to maintain your living expenses and ongoing IVA payments. Any addition money has to be handed to your IVA company.
If you have not found another job after 6 months of being made redundant you could chose to suspend your IVA for longer with a payment break or let it fail.