Your Living Expenses Budget is a critical part of an IVA application. It is use to work out how much you will pay into the Arrangement.
- Why is your IVA Living Expenses budget important?
- What items should be included in the Budget?
- What levels of expenditure are allowed for each?
- Get our Living Expenses Guide
Why is your IVA Living Expenses budget important?
An IVA normally involves paying a monthly amount towards your debts for 5 years. Before you decide to go ahead you therefore need to understand how much this payment will be.
The amount you have to pay is based on your Disposable Income. This is worked out by taking your total living expenses budget from your income. As such the first thing you have to do is accurately calculate your living expenses budget.
If you miss things out of your budget your disposable will seem higher than it actually is. You could then be asked to pay more than you can afford into your IVA. If your budget is too high your creditors might reject the Arrangement.
Correctly calculating your Living Expenses Budget ensures the payments you agree to make into your IVA are affordable and sustainable.
What items should be included in your Living Expenses Budget?
There is a long list of things that you will need to add to your Living Expenses budget. These will include fixed items that stay the same every month and ones that vary depending on how much you spend.
Fixed expenses are things like rent or mortgage payments, utility bills and council tax. You will normally be able to identify these from your bank statement.
Variable expenses like food shopping, clothing, car maintenance and socialising may well change from month to month or the time of year. The best way to account for them in your budget is to use a sensible average figure.
Take care to not to forget to include expenses you do not pay regularly. Items like car maintenance and clothing are easily forgotten.
Get a copy of our IVA Living Expenses Guide: Download living expenses guide
What levels of expenditure are allowed for each item?
You should include amounts for each item in your living expenses budget that are sufficient for your needs. However you must also take care to use unreasonably high figures.
Your creditors will review your budget carefully. They will compare the amounts you have included to those which they believe are reasonable. If they believe the figures you have used are too high they may request changes to your IVA.
If your expenses are rejected for being too high do not agree to reduce them unless you believe you can. It is better to abandon your proposal and consider an alternative debt solution then struggle with IVA payments you cannot afford.
You may feel you need to include expenditure amounts which are higher than average. This could be because you have unusual travel or medical requirements. You should put these figures into your budget but be prepared to justify them.
Get our Living Expenses Guide
A good way to make sure you include all the items you need in your budget is to use our IVA Living Expenses Guide. It gives a comprehensive list of the expenses you should include.
Using the categories suggested in the Guide should mean that you do not miss out important expenditure items.
It also gives hints and tips about the minimum and maximum amounts you should use for each variable category. This should ensure that your budget is ultimately acceptable to your creditors.
The guide is free. To get a copy click here: Download living expenses guide