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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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
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.
In this article the scenarios are given for pay increase or unexpected windfall, it then goes on to say that if it is a pay increase then 50% of the increase would be taken to encourage the person to earn more, the windfall would have to be paid in full. But what happens if the extra income is because a person starts being paid state pension as in my case, what would I be expected to pay out of that.
Hi Lesley
First of all I would ask whether the fact you would start to receive your state pension during your IVA was anticipated at the time the arrangement was agreed? If so there should be a specific provision within the terms of your IVA as to what will happen to this source of income when you start to receive it.
That said if you start to receive a pension I would ask whether your other forms of income will fall as you retire from your job? If so and your overall income remains the same then there would be no change to your disposable income or payments. A change would only incur if you are left with a higher income than before.
If your income is going to increase overall then in the absence of any provision for this in your terms and conditions common sense suggests that this new income should be treated in the same way as any other increase in income. In other words 50% of any increase would have to be added to your payment.
Hi,
Myself and my wife have a joint IVA of £41000 arranged in July 2014. We had been paying £420 a month which was increased to £495 on the anniversary date 2018 due to me earning more at work. An equity release was attempted 3 months ago but was unsuccessful so our IVA has been extended by another year.
On the anniversary review this year (July 19) I went through our expenditures in depth and made a lot of changes, it was the first time I had done so since entering the IVA as I usually just put down our income and left the outgoings as they were at the beginning.
We had a car on finance which finished a couple of months ago. We also aren’t paying as much childcare as the kids are at school longer. I was honest with our expenditures and when totalled up we are a couple of hundred pounds worse off than when we started our IVA even with the car finance finished. Our IP has now requested another increase in payment to £565 even though on paper we are worse off, how can this be?
Hi Emmet
What you are saying is that after your latest review your payments have increased again by £70 from £495 to £565. There may be a number of reasons for this. Firstly has your income increased at all? If not then the change must be the result of reductions in your expenditures.
As you have said you have had a reduction in your childcare. In addition you are no longer paying your car HP which will have meant a specific reduction in your expenses. Given these two expenses combined added up to more than £70/mth it seems as though your IVA company have taken into account some of your other expenditure increases. However they may not have allowed everything. For example requests for increases in expenditure because “the cost of living has gone up” are often disregarded.
If you want to understand exactly what expenditures your IVA company has disallowed and why your payments have gone up not down as you hoped you will need to ask them about it.