If you have personal debts that you cannot afford to repay you may be considering an Individual Voluntary Arrangement (IVA). However this will only be accepted by your creditors if your living expenses are reasonable.

There are strict guide lines as to what make up a reasonable IVA living expenses budget. If you find that you are unable to stick to this because you need to spend more then it may not be possible for you to use this type of debt solution.

What are reasonable IVA living expenses?

Your rent or mortgage payment, council tax and utility bills are determined by the type of house you live in and how many people are in your family. You will generally not be able to change these expenses very much, particularly in the short term.

However, other expenses such as the amount you spend on food, travel and fuel and clothing are more flexible.

If you are proposing an IVA, your creditors will expect you to keep within some living expenditure guidelines for these flexible expenses which have been commonly agreed.

Justify excessive expenditure

You should use the living expenditure guidelines to create your monthly living expenses budget. You will then be able to compare this to your income and see what is left which can be used as a payment to your creditors – your disposable income.

If your disposable income is high enough to meet the minimum payment required for your IVA but some of your living expenditures are higher than the guidelines, you will have to be prepared to justify what you spend.

If you cannot do this, your creditors may not accept your IVA proposal unless you agree to reduce your expenditure and pay them more.

Cut back on your spending

If your disposable income is not enough to meet the required payment for your IVA, you should first review your living expenses and see if you can make any cut backs. Alternatively, you may be able to increase your income. Perhaps taking a part time job or renting out a spare room to a lodger.

However the most important thing to remember is never agree to cutting back on your living expenditures or increasing your income if you do not believe that these changes are sustainable.

It is a big mistake to agree to make monthly IVA payments that you cannot afford. If you do this, then at best you will find it incredibly difficult to live for the five years that your IVA is running. Or at worst you will simply not be able to keep up with the payments and your IVA will fail. You could then risk being declared bankrupt.

Consider a Debt Management Plan

The golden rule when considering an IVA is if you cannot comfortably afford the required monthly payments, then you should not proceed.

As an alternative your next best option may well be a debt management plan (DMP). You will almost always be able to start a DMP based on lower monthly payments which you can afford.

Stick with your DMP for six months. This will give you a breathing space from your creditors and time to really understand your monthly budget.

If your income improves or you feel that you can make cuts in your expenditures, you could then reconsider starting an IVA at that time. Alternatively you might be happy to stick with your debt management plan or even decide that bankruptcy is a better option.