The payments you make into an IVA are based on the amount you can afford. As such they depend on the level of your income and living expenses.
- How much will you have to pay into an IVA?
- Do you have to prove what you can pay?
- Will your Payments ever change?
- What if you cannot afford monthly payments?
How much will you have to pay into an IVA?
Your IVA payments are normally based on your disposable income (sometimes known as surplus income). This is the amount you have left over from your total monthly income after your total monthly living expenses are deducted.
If your total income is £1500 and your total living expenses are £1350 your disposable income is £150 (£1500 less £1350 = £150).
You will have to pay all of your disposable income into your IVA. It is therefore critical that you calculate it accurately. You must ensure your Living Expenses Budget covers all the expenses you reasonably require including amounts for socialising and emergencies.
If your total living expenses are too low your disposable income will be artificially high. You will then struggle to maintain this payment and your IVA will be at risk of failing.
The payments you make into an IVA are not related to the amount you owe. They are entirely dependent on what you can afford. As such they differ from person to person.
Do you have to prove what you can pay into your IVA?
By accepting an IVA your creditors agree to write off the debt you cannot afford to pay back. But before they do this they need to be sure you are offering to repay the maximum you can afford.
They get this assurance from your Insolvency Practitioner (IP). Before your IP drafts your Proposal they will ask you to provide proof of your income such as copies of wage slips or tax returns (if you are self employed).
You will also have to provide proof your expenditures. As a minimum this will include 3 recent bank statements and a copy of your rent agreement or recent mortgage statement.
Will your IVA Payments ever change?
IVA payments are not fixed. If your income goes up the amount you pay into the Arrangement may also increase. You must inform your IP about any changes in your income straight away so your payments can be recalculated.
Your IVA will not be paid off faster if your payments increase. The amount you repay to your creditors will simply increase overall. The total amount of debt they write off for you will therefore reduce.
You will not have to hand over all the extra money you are earn. Your payments will only go up by 50% of any increase in your disposable income.
If as a result of a pay rise your disposable income increases by £100/mth your payments will increase by just £50/mth. You keep the other £50 to spend how you wish.
If your income goes down or your living expenses increase it may be possible to reduce the payments you make. However this may also result in the length of the Arrangement being extended.
What of you cannot afford monthly payments?
An IVA does not have to be paid monthly. If your income fluctuates but remains constant over a three month period you could make your payments quarterly. This can be useful if you are self employed.
The lowest possible monthly payment is usually around £100. If you cannot afford this someone else could pay it for you. This person could be your spouse or partner or any other third party.
If a third party agrees to help you pay your IVA but then they stop doing so you remain liable for the outstanding debts. The liability is not passed to them.
If you cannot afford regular payments at all you could consider a full and final payment IVA. This type of Arrangement is paid off in full with a single cash lump sum. It could be used if you have been made redundant and have received a redundancy payment or a third party can pay a lump sum on your behalf.