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.
- 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.
Depending on the terms of your IVA you may be able to keep the first £500 of any windfall.
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.
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.
If you take a payment break during your IVA the payments you miss are added to the end. As such it will extend the time the Arrangement lasts.
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. This change would cause a permanent fall in your disposable income.
Where the fall is less than 10% your IP will normally just reduce your payments by the same amount. However if the fall is greater they will have to ask your creditors to accept the reduction. If the creditors accept they will normally expect the total number of payments you make to be extended by 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.
Depending on the length of time you have been in the Arrangement and the amount you were paying the result could be that it will fail. Where this happens you are still liable for the debt that remains unpaid.
If the payments you were making were relatively high the creditors may accept the amount already paid as full settlement of your debt. As such the Arrangement will be regarded as completed.
If you have been made redundant you may be able to pay the Arrangement off early using some of the money you have received. The amount you have to hand over will depend on how likely it is that you will be able to get a new job.