Your monthly IVA payments can increase. Although they are agreed at the start of the IVA, they are not fixed. They may go up if your circumstances change.
Included in this article:
- Can IVA payments increase
- What happens if your income goes up
- Will your payments increase if your living expenses reduce
- Could your IVA payments go down
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Can IVA Payments Increase?
If there is an improvement in your financial circumstances during your IVA, your payments could go up.
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.
However if your circumstances change for the better your IVA company must review the amount you are paying.
When you agree to an IVA, you are committing to pay back as much as you can towards your debt. If your payments increase your IVA will not normally be paid off early. Your creditors will simply get a greater percentage of their debt back.
You should not worry about increases in your IVA payments. This will only happen if you can afford to make the change.
What Happens if Your Income Goes Up?
If you have had an increase in your income you must inform your Insolvency Practitioner (IP). They will then review your disposable income. If it has increased it is likely your ongoing monthly payments will also go up.
You will not have to pay all your extra income into your Arrangement. This would provide little incentive for someone to work hard and earn extra money. The IVA will usually take only 50% of the the extra disposable income you have as a result of the increase.
If the additional income incurs extra expenses these are also taken into account meaning the increase in disposable income may not be so large. For example a pay rise may involve additional working hours which result in extra child care costs.
One off extra payments such as a bonus or overtime are not treated the same way. You would always get to keep the first 10% of extra income in any month. However 50% of anything over this must be paid into the Arrangement.
Your IVA will only be paid off early if the increase in your payments results in you paying 100% of your original debt plus your IVA company fees plus interest of 8%.
Will your payments increase if your Living Expenses reduce?
Whilst you may not have an increase in your income, your IVA payment may still increase if your regular living expenses reduce for some reason. A good example of where this would happen is if you complete a car finance agreement during the arrangement.
Many IVAs are agreed on the fact that you know such a reduction in your expenses is coming. They are sometimes called ‘stepped IVAs’. They can be useful as they allow you to start the IVA with much lower contributions than would ordinarily be allowed.
If your living expenses reduce and you can afford to pay more into your IVA you must inform your insolvency practitioner (IP) of this straight away. They will expect you to increase your payments by 100% of the reduced expenditure.
Do not wait until your next annual review to tell your IVA company about an increase in your income or reduction in your living expenses. The change will be calculated from the date it happened and if you delay you will get into arrears with your new payments.
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.
Your IP will review your new income and expenses budget and any change in your disposable income. If reducing your payments to this amount will still generate a sufficient to return to your creditors it may be allowed.
Where a reduction in your monthly payments is agreed you must expect to give something back to your creditors in return. Normally the length of your IVA will be increased by 12 months to compensate them.
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. Whether you receive a redundancy payment can also have an impact.
Your IVA company is unlikely to allow a reduction in your payments simply because the general cost of living has increased. Only specific increases such as a change in child care or an increase in rent or mortgage payment are normally considered.
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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
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.
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?
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.
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?
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.