What happens if my financial position improves during an IVA? IVA FAQ

Summary: What happens if my financial position improves during an IVA? - When considering an IVA, it is important to understand the effects of an improved financial position on an IVA.

The IVA principle

The basic principle behind an IVA is that the debtor will do the best they can to repay as much of their debt but for a fixed period. Creditors trust an Insolvency Practitioner (IP) to recover as much of the debt as is reasonable, and ensure fairness towards both debtor and creditors.

Known changes during an IVA

Sometimes IVA's are presented with a known pay rise in the pipeline or a reduction in outgoings that will increase the debtor's disposable income. For example, there may be arrears of rent/mortgage or council tax to clear. This is built in to the expenditure budget of the debtor as an expense. However once the arrears are paid off the assumption will be that available income for the IVA will increase. The same applies to a HP arrangement such as a car. As the amount owing to the HP Company is secured on the car, the debt cannot be included in the IVA. Allowance can be made within the IVA to continue paying this, but once completed, the assumption will be that the IVA payments can increase.

Pay rises

If someone in an IVA receives a large pay rise it is appropriate to inform the IP. Assuming outgoings have not also increased then the available income for the IVA will also increase. If a pay rise is relatively small, then the increase may simply offset increased cost of living. The IVA payment level can be assessed at the annual review.

Bonuses and overtime

If overtime is guaranteed it is normally built in to the IVA as income. Most overtime along with bonuses are not guaranteed so the IVA payment level can't be based on these. However when overtime pay or bonuses are received then this constitutes new income and enables the debtor to pay more of the debt back. The normal arrangement is that the debtor is allowed to keep the first 10% of their basic monthly salary and 50% of the remainder is offered to the IVA. The practical arrangements for handing over this extra payment will be discussed with the IP.

Windfall

The normal arrangement is that windfalls (inheritance, lottery win etc) will be handed over to the IVA up to the full amount of the debt plus IP fees.