Can my IVA Payments Increase

Can my IVA Payments Increase

Whilst your monthly IVA payment is set at the start of the IVA, this is not necessarily fixed. Your IVA payments may change as your circumstances change.

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Can IVA Payments Increase?

When you agree to an IVA, you are committing to pay as much as you can reasonably afford during the period of the IVA. Your payments will be based on your agreed budget and disposable income.

The payments you make are not necessarily fixed to the payment that was set at the start of the IVA. If there is a change in your circumstances, the payments could go up or down.

Rest assured, your creditors cannot simply decide they want you to pay more out of the blue. Once the Arrangement is agreed this amount is legally binding. Usually a payments change may come from an annual review or when you notify them of a significant change.

Any change would consider the full picture, both in income and any changes in expenditure. Nothing is looked at in isolation as the new payment has to be affordable for you.

You should not worry about changes in your IVA payment. As long as you provide all our financial information accurately (both income and expenses), your payment will remain affordable.

What Happens if Your Income Goes Up?

If you have had an increase in your income you will have to inform your Insolvency Practitioner (IP) and your disposable income will be reviewed. If this has increased then it is likely that your ongoing monthly payments will also increase.

Usually in an IVA if the disposable income has increased due to a pay rise, the IVA payment will not take all of the extra income. This would provide little incentive for someone to work hard and earn extra money. In this case the IVA payment would usually take 50% of the additional disposable income.

If the additional income incurs some extra expenses then these are also taken into account. For example if the pay rise involved additional working hours which resulted in extra child care costs, then this would be considered. It may be decided that there is no increase in the IVA payment at all.

One off extra income such as a bonus or overtime is not treated the same way. You would always get to keep the first 10% of extra income in any month. However, you would pay 50% of anything over this first 10%.

If your payments increase your IVA will not be paid off early. Your creditors will simply get a greater percentage of their debt back.

Expenses Reduce Pushing IVA Payment Up

Whilst you may not have an increase in your income, your IVA payment may still increase. This would happen if your regular living expenses reduce for some reason. This is less likely to be based on smaller bills like gas or electricity. This could possibly be a car finance or a secured loan coming to an end.

If your living expenses reduce and you can afford to pay more into your IVA you must inform your insolvency practitioner (IP) of this. They will expect you to increase your payments accordingly. You should do this promptly, as if you wait you may be asked to pay in the extra funds that you have already spent!

Unlike a pay increase, if your disposable income increases by say £200 as a car finance deal ends, you would be expected to pay all of this to the IVA, not 50%.

Many IVAs are agreed on the fact that the creditors know such a change is coming. These are sometimes called ‘stepped IVAs’. As such the first 3 years are much lower contributions, but the last 2 years are higher making the overall offering to the creditors more acceptable.

When considering an IVA be sure to discuss possible changes in the monthly payment amount with the IP. That way it doesn’t come as a shock when it happens.

Could Your IVA Payments Go Down?

If your income falls or you have a material increase in your living expenses your disposable income may reduce. As such it may be possible for your IVA payments to be reduced. However this does not happen automatically. It will depend on whether your new payments will still be sufficient to return a realistic amount to your creditors.

Your IP will review your new income and expenses budget. If your disposable income has reduced by less than 10% then they can authorise a reduction in your payments without discussing this with your creditors. However if the reduction is more they will have to ask your creditors to agree this in a formal variation of your IVA.

Your creditors may agree to a variation reducing your monthly payments. However they will normally also insist that the number of payments you make is extended by up to 12 months to compensate.

If you lose your job during an IVA the outcome will really depend on how likely it is that you will be able to get more employment and when this will be.

If the reduction in your income is only temporary you should consider a payment break rather than reducing your payments.

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8 thoughts on “Can my IVA Payments Increase

  1. Laura says:

    Hi, I am currently in an IVA, there has been mention of a pay increase, the amount my IVA payments will increase by means I will end up paying a lot more on my IVA than my original debt was for

    1. Hi Laura

      Remember if you get a pay increase not all of the extra money you get has to be paid into your IVA. Your IVA company will recalculate your disposable income based on your new pay. However you will only have to pay 50% of any increase in this into the arrangement. The other 50% is yours to keep.

      That said if the subsequent increase to your payments means that you will now pay more than your original debt this will not mean your IVA finishes early. Your IVA will continue until all the payments are completed or they collect the total of your original debt + their fees + interest at 8% pa on the debt (from the start date).

      The only way you can avoid this (ie paying more than you originally owed) is to cancel your IVA and use a different solution (perhaps a debt management plan). However remember if you chose to do this then much of the money you have already paid into the plan could be taken by your IVA company to pay their fees. As such you may still owe a similar amount to when you started the Arrangement.

  2. Simon says:

    Hi

    I am possibly going for a new job which will be an extra £10,000 a year more. I am currently 1 year in to my 5 year IVA. Will they just take all my extra earnings? If so will I be paying all that extra for the remaining 4 years or would it work out being paid of quicker?

    1. Hi Simon

      Your IVA company will not take all your extra earnings. First they will review your income and expenses budget in the light of the increase in your monthly income. You can also change your expenses if you have additional costs associated with the new job (for example increased travel costs).

      If after considering all the changes your disposable income has increased, 50% of the increase is added to your IVA payment. You can keep the other 50% for yourself.

      Where you end up paying more into your IVA this does not mean the Arrangement will be paid early. You will still have to continue paying for the 4 remaining years. The effect will simply be that your creditors are repaid more of the money they are owed.

  3. Robert says:

    I am currently in an IVA. What I would like to know is about an increase of income. So I am going to get an extra 500 per month as I have taken a 2nd job. The IVA firm have told me that I have to do a new expenditure form to see what my new payments will be. My expenses have also gone up by £250 per month because of having a new baby and household bills going up, so I understand that they will take 50 percent of the 250 left from that intitial extra 250.

    What my question is, is at my year end review, will I now be expected to pay the whole extra 250 disposable income instead of just the 50 percent I would have been paying extra?

    1. Hi Robert

      It is easiest to explain what will happen to your payments using an example. Lets say your current IVA payment (your current disposable income) is £300/mth.

      You now get a pay increase of £500/mth. However you and your IVA company both agree that your living expenses have gone up £250/mth. This will mean that the extra disposable income is £250/mth.

      Given the terms of your IVA are standard they will say you can keep the first 50% of this extra disposable income. The other 50% must be added to your current payment. So you will have to add £125 to your current payment (50% of £250) making the new payment £425 (£300 + £125).

      Note: You must tell your IVA company about this increase as soon as you get it. The new payment starts from the first month you receive your pay increase. You do not wait until your next annual review to start the new payments.

  4. Lynn says:

    I have been advised that my creditor debt has increased by 15% and I breached my agreement – how is that possible? My payments are up to date, I haven’t earned anything extra. Thanks

    1. Hi Lynn

      Your IVA payments should only increase if your income has risen or your living expenses have fallen. If you believe your payments have risen but you dont know why then you must ask your IVA company for clarification.

      I am not exactly sure what you mean my “my creditor debt has risen by 15%”. If you can give some more details I will try to help.

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