One of the attractions of an Individual Voluntary Arrangement (IVA) is that if you are struggling with your debts it will allow you to reduce your monthly payments so that they fit into a single affordable amount.

In a standard Arrangement the payment amount you make each month will be agreed up front with your creditors. After your creditors accept your proposal they cannot then go back on the deal and ask for more money. In this sense the payments you are required to make are fixed.

However there are still some reasons why the payments you make might change while your Arrangement is in place. We consider what these are.

IVA payments can change if your income changes

When you start an IVA one of the conditions that you agree to is that if your income improves for any reason you will then increase your monthly payments if you can. However your payment will not increase by exactly the same amount that your income has gone up by.

Before deciding whether your payment should go up your company will first want to review your new income and expenditure budget to see if your disposable income has changed.

As such if earning your increased income means that your childcare costs have also increase then your disposable income may have only increased marginally if at all. As an incentive to try and increase your income if there is any increase in your disposable income then you will need to add just 50% of this to your regular monthly payment.

BMD Tip: Of course  this condition of the arrangement works both ways. If your income falls through no fault of your own, it is possible to reduce the payments that you make. However will always depend on whether the arrangement still remains financially viable.

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Will your IVA payments change if your living expenses change?

The amount that you pay into your IVA is largely dependent on your monthly living expenses. As such a change in your living expenses could mean that your monthly payment will also be revised up or down.

If your living expenses fall, you will be expect to add the amount saved each month to your regular payment meaning that the overall amount that you pay back to your creditors will increase. The most common example of this is when a car hire purchase agreement comes to an end. You will then be expected to transfer what you were paying to the HP company into the Arrangement for the remaining months you have left to pay.

If your living expenses rise for a specific reason then it may be possible to reduce your payments so that they are more affordable. However to gain agreement to this the reason behind the increase in our living expenses must be tangible.

For example if your job location changes and it becomes more costly to travel to work this is a clearly measurable increase in living expenses. However it is unlikely that you will be able to simply reduce your payments because of a general rise in the cost of living unless you can prove that your circumstances have been specifically affected.

Can the length of an IVA ever be extended?

The number of months that you have to pay your your IVA will be agreed at the beginning of the arrangement. Generally speaking this will be for a standard period of five years (60 months). This payment term is normally fixed however there are some circumstances where the period might be extended.

One of the most common reasons for an extension is if during the arrangement you agree with your insolvency practitioner (IP) that you will take a payment holiday. A payment holiday may be agreed by your IP to get you through a period of unemployment or other financial crisis.

The number of payments that you miss due to a payment holiday will normally be added to the end of the Agreement thus extending the length of time that you will have to pay.

Your payments might also be extended if you have to reduce the monthly amount that you pay because of a reduction in income or increase in living expenses. Your creditors could ask for this extension to ensure that they are repaid the same amount overall.