You will normally have to make monthly payments into your IVA. Before deciding to start the Arrangement you need to understand how much these will be.
Included in this article:
- How much will your IVA Payments be?
- What is the minimum that can be paid?
- Are the Payments fixed?
- What if you struggle to maintain your Payments?
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How much will my IVA payments be?
You have to make monthly payments into an Individual Voluntary Arrangement (IVA). Your payments are based on your Disposable Income. What is Disposable income and how do you calculate it? To find out more please visit: http://beatmydebt.com/individual-voluntary-arrangement-frequently-asked-questions/how-much-will-my-iva-payments-be
How much will your IVA Payments be?
IVA payments are not related to the level of debt you owe or the money your creditors are demanding you pay. Rather they are based on the amount you can afford.
This figure is known as your Disposable Income. It is calculated by deducting your reasonable monthly living expenses from your income. The amount left over is what you have to pay into the Arrangement.
Because there is no predetermined level which an IVA payment should be the amount you pay is unique. It is entirely possible that another person with the same amount of debt could pay a different amount into their Arrangement.
During the IVA application process you will have to provide proof of your income and living expenses. This is to ensure you are paying as much as you can afford into the Arrangement.
What is the minimum that can be paid into an IVA?
Legally speaking there is no minimum amount that has to be paid into an IVA. The law does not prescribe the amount of debt that has to be repaid during the Arrangement.
Having said that you will normally have to be able to pay at least £100-£150 a month to be accepted for an IVA. In some instances it may be possible to pay less than £100 each month. However this is unusual.
As well as there being no minimum IVA payment amount there is also no maximum. If your disposable income is £500 a month this is the amount you will be required to pay into the Arrangement.
It is unlikely an IVA will be suitable for you if your disposable income is large enough to repay your debt in full within 5 years or less.
Are your IVA Payments fixed?
It is important to understand that monthly IVA payments are not fixed. It is more than possible for them to go up during your Arrangement.
This could happen for one of two reasons. Firstly your income may increase. If this happens you must inform your IVA company. Where your disposable income has increased your payments will go up.
Secondly your living expenses might fall. A common reason for this is where a car HP agreement comes to an end. As a result your disposable income increases and your payments will also increase.
If your payments increase it will not reduce the length of the Arrangement. Your creditors will simply be paid back more of the money you owe them overall.
What if you struggle to maintain your IVA Payments?
A standard monthly payment IVA will last for 5-6 years. During this time it is likely that your circumstances could change for the worse. Your income may fall or your living expenses may rise.
If this happens it may be possible to reduce the amount you have to pay into the Arrangement each month. However you are not allowed to simply reduce the payments. You must get the agreement of your IVA Company.
Where your situation has become worse for a specific reason then as long as you can still pay a reasonable amount you should be able to reduce your payments. However the length of the Arrangement will normally be extended to compensate.
After having calculated your disposable income you think you will struggle to pay this amount an IVA may not be for you. If you cannot afford to maintain the payments the Arrangement is likely to fail.
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