IVA definition and what it means for you
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Pay rises can sometimes affect what you need to pay into your IVA. Here are the facts.
If you’re on an IVA or you’re considering starting one to deal with your unsecured debts, you might be wondering what’ll happen if your wages change during the life of the plan.
What happens depends on how much more money you’re actually left with at the end of the month, and whether the change is permanent or not. Here’s what you need to know.
Permanent pay rises
If your wages go up it’s possible that your IVA payments will as well. Having said that, your payments will never go beyond what you can realistically afford. You will always be able to pay your essential bills as well.
If you get a pay rise, you need to call your IVA provider and let them know. They will go through your income and expenditure (I&E) again to find out how much more money you’ve got left in your pocket with your new wage. Your I&E is a very detailed list of all the money you have coming in and all the money you have going out.
So if your new job meant that another expense in your life was going to go up, for instance travel expenses to and from work, then this would be taken into account on your I&E. You are only expected to put your disposable income into the IVA – the amount you have left once all your essential expenses have been accounted for. If it turns out you did have a rise in disposable income because of your increased pay, then you would need to put 50% of this towards your IVA.
Overtime, bonus or commission
But what happens if you get a bit more money now again as the result of overtime? Any overtime, bonus or commission is classed as ‘additional monies.’ Additional monies don’t always have to be paid into the IVA – it just depends on how much you get. Let’s look into that in a bit more detail.
The rule is if you haven’t earned more than 10% over what your IVA provider has listed down as your income, then you won’t have to pay it into the IVA.
For example, let’s say you earn £1,000 per month. 10% is £100, so anything up to £1,100 you would get to keep. Half of anything over that amount would have to go into the IVA. So if you earned £1,150 one month because you worked a few extra hours, £25 of that would have to go into the IVA as it’s half of the extra above the 10% you’re allowed to keep.
Additional Monies is looked at every six months
Every six months your IVA provider will look at additional monies and see whether you need to pay in anything extra. (Unless you get an annual bonus in which case it will be looked at once a year.)
Your 10% allowance for overtime, bonus and commission is for the whole of that six month period – not month to month. Let’s go back to our £1,000 per month example. Imagine that one month you earn £400 extra. Because additional monies is looked at over the whole six month period, your expected earnings would be £6,000 and your 10% allowance for that period would be £600. So during the whole six month period you earned £400 which is below the threshold and would be yours to keep.
This is important to remember, as it means you’re allowed to keep all of your 10% allowance for the six month period, even if you happen to have earned it all in one month during that period.
These rules are important to be aware of but shouldn’t be cause for worry. Your solution provider will explain them all clearly to you when you begin your IVA, and also make sure that they look at your additional monies every six months, as well as conduct an annual review. For more info on what this entails, have a look at our blog on annual reviews.
You need a reliable income
Before you start an IVA, your debt advisor will make sure you have a reliable source of income. This is because an IVA involves you paying a regular amount of money to your debts while it’s ongoing (normally five years).
An IVA lowers your payments to an affordable amount and also writes off the rest of your unsecured debt at the end of the plan, if it completes successfully. Because of this, it’s really important that your creditors can see you’re paying everything you can towards your debts each month – and you can’t do this without a reliable income.
What if my income drops?
The other possibility is that your income will drop while you’re on the IVA. If this happens, it is sometimes possible to lower your payments on the plan.
Just get in touch with your IVA provider and explain the situation to them. You might need to ask your creditors for permission to lower your payments, but if this is the case your IVA provider will deal with all of the negotiations for you.
Your Insolvency Practitioner – who deals with your IVA – can change your payments by up to 15% without needing to ask your creditor’s approval but you may be asked to provide evidence. If the reduction was going to be bigger than 15%, your creditors would need to give their permission. Our blog on varying payments on an IVA will explain this in more detail for you.
There are other solutions available
If you’re concerned an IVA isn’t right for you because of fluctuations with your income, or for any other reason, the best thing you can do is get expert advice. There are other solutions that could be better – it just depends on your particular situation.
You can also speak to one of our advisors using the options on the left of the page. They are specially trained to find the right solution for people with unmanageable debt and will be able to help.
There’s also lots of free and impartial advice available from the Money Advice Service.
by Christine WalshBack to blog home