If you earn overtime during an IVA you will have to pay some of this into the Arrangement. Generally speaking it will not mean that the Arrangement is paid off more quickly.
Included in this article:
- Can you keep overtime payments earned during an IVA?
- Does overtime mean your IVA will be paid off early?
- What happens if you get a bonus?
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Can you keep overtime payments earned during an IVA?
You may get the opportunity to earn overtime. Because it is not guaranteed, this type of earnings will not have been included as part of your normal monthly income calculation.
However if at any time you do earn extra money, you must tell your IVA company. They will normally need you to pay some of it into your Arrangement.
Generally speaking you can earn up to an additional 10% of your normal income in any one month and keep all of this. But anything over 10% must be split 50/50 between you and the Arrangement.
So for example, if your monthly income is £1000 and you earn an extra £200 in overtime, the first £100 (10% of your normal income) is yours to keep. The next £100 is split 50/50. You therefore keep £150 and £50 is paid into your IVA.
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Does earning overtime mean your IVA will be paid off early?
If you earn overtime and pay more into your IVA, the Arrangement will not be paid off any earlier. You still have to make all of your remaining payments. Your creditors are just paid back more of their debt.
The only time your Arrangement could be paid early as a result of extra payments is if the extra you pay is sufficient to cover the total of your original debt plus fees and interest.
It may be possible to settle your IVA early if you can pay a one off lump sum. However this could not come from an overtime payment. It would normally have come from a third party.
What happens if you receive a bonus during your IVA?
It is possible that your employer will pay you a bonus during your IVA.
Bonuses are treated in the same way as an overtime payment. You will be allowed to keep the equivalent of 10% of your normal monthly income. 50% of the rest will have to be paid into your IVA.
You might receive a quarterly or annual bonus. This is associated with work carried out across a number of months. However the amount you have to hand over is calculated based on just the income for the month in which the bonus was received.
So if your monthly income is £1,000 and you receive an annual bonus of £1000 in December, you will be able to keep the first £100. The remaining £900 is divided between you and your IVA. As such overall you will keep £550 and pay £450 extra into your IVA that month.
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So regardless of how much i owe (say i owe £12,000) and with overtime pay i can pay that all back in full plus fees in 3 years will i still have to pay my monthly installments and overtime i earn for the remainding 2 years i have left on my IVA?
To be clear Ben once you start an IVA you normally have to pay for the full 5 years even if your income increases or you earn extra overtime.
This is because the IVA agreement states (and you may not be aware of this) that if you can afford it during the arrangement you have to pay 100% of the debt you originally owed plus the fees charged by the IVA company plus interest charged at 8% per year on the original balances from the start date of the arrangement.
In your case (given you owe £12k) this would total around £22,500 (£12,000 + fees which of around £3500 + interest which will be around £4800 (8% per year).
So if you paid back £22,500 in 3 years then yes your IVA would then be completed and finished early. However until you reach that point you will continue paying. The payments will only stop once you have paid for the full 5 years or until you have paid back a total of £20,500 (which ever happens earlier).
Hi,
I am going to be made redundant and I will be getting a retention bonus to see it through to the end. It will be a significant sum (approx 4k MORE than I would have outstanding on my IVA) I will also receive 2 weeks redundancy pay as well.
I have asked my IVA company what would happen to my redundancy pay (will they take it or let me use it whilst trying to find another job) and also will I have to pay over ALL of my retention bonus or just the 50% on top of my normal salary. I have also asked if I could use the lump sum as a full and final settlement but they refused to answer if this would be considered. Any advice welcome. Thank you.
Hi Nikki
First lets look at your redundancy pay. The rules on redundancy pay during an IVA are normally clearly stated in the terms and conditions of the Arrangement. In general redundancy payments are treated as windfalls and will have to be paid into your IVA as such. However you will be allowed to retain the equivalent of 6 months take home pay to cover your ongoing living expenses. Given this if you are only going to get redundancy pay equivalent to 2 weeks wages you have nothing to worry about and will be allowed to keep this.
In terms of the retention bonus I believe your IVA company will treat this differently. I think it may be highly likely they will treat this as any other work bonus. As such you will normally have to hand over 50% to them (less the 10% of your normal monthly take home salary). You will then be left with the other 50% and I see no reason why you could not negotiate a full and final settlement using these funds. Given you have been made redundant I would have thought your IVA company would be keen to discuss this with you.
My IVA was due to finish this May but owing to the fact that I had earned quite a bit in non-guaranteed overtime the company extended the term by 10 months to allow me to pay the outstanding amount as I couldn’t afford the full amount up front.
Now after four months of making that payment they have asked me to increase my monthly payment by 20% which means I will be giving them more than the original percentage that they were entitled to take. They haven’t asked my to fill out an income and expenditure form And I cannot afford the increase.
Is the company allowed to do this?
Hi Barry
If your IVA is extended to pay an outstanding amount it is important to understand that it is not just the outstanding amount that can be collected. All the terms of the IVA are extended. In other words if your income increases or you earn overtime or get a bonus during the extension this has to be treated as if it had happened at any other time during the Arrangement. You would then have to hand over additional amounts accordingly.
I assume this is why your IVA company have now asked you to pay more? However if, as you say, nothing has changed it does seem strange. The only way to get to the bottom of it will be to ask them I am afraid.
One final point… You mention that such an increased payment will mean you repay more than the “original percentage they were entitled to take”. In fact the terms of an IVA normally state that where possible (due to income increases and the like) the IVA Company can collect up to 100% of the original debt owed plus their fee and plus interest at 8% pa.
As such it is more than possible that during the life of an IVA you will pay more back than the amount originally anticipated at the beginning.