£19k repaid on a £10k debt?

[john146]

Seeking advice for a friend. My friend has an IVA for a debt of £10,000 over 5 years. When it started, the cost was £100 p/m, but has now increased to £600 p/m. Just over 4 years in, near £13,000 has been paid, and the debt cleared, but the IVA say payments must continue for the full 5 years, which means, about £19,000 will have been paid over the term, and £9,000 going to the IVA operators. The question my friend wants answering, is it right, that in the original agreement, it never stated the amount the operators would take from the total payments, which goes up, because they kept on upping the amount to be repaid p/m from the original £100 p/m. So now, my friend is paying £600 p/m in fee's which he feels is extortionate I would be most grateful, if you could let me know, if this is a normal procedure to IVA debt management....Thank-you...

[Foggy]

Seeking advice for a friend. My friend has an IVA for a debt of £10,000 over 5 years. When it started, the cost was £100 p/m, but has now increased to £600 p/m. Just over 4 years in, near £13,000 has been paid, and the debt cleared, but the IVA say payments must continue for the full 5 years, which means, about £19,000 will have been paid over the term, and £9,000 going to the IVA operators. The question my friend wants answering, is it right, that in the original agreement, it never stated the amount the operators would take from the total payments, which goes up, because they kept on upping the amount to be repaid p/m from the original £100 p/m. So now, my friend is paying £600 p/m in fee's which he feels is extortionate I would be most grateful, if you could let me know, if this is a normal procedure to IVA debt management....Thank-you...

On the face of it, normal. The IVA payment will increase as and when income increases or expenditure decreases. The amount to be paid in fees will be detailed in the Chairman's Report of the initial meeting.

On a debt of £10k over 5 years, to clear the total owed, plus fees and statutory interest would be around £17 - 18 k

[john146]

Hi Foggy, Thanks for your reply. My friend said there was no mention of how much the fees would be to the IVA providers, in terms of a stated amount, i.e, total fees £3,000 for running the debt, for example. It said something about a % on the first review, but gave no indication it would amount to near 90% value to the debt itself. I think by what you say, my friend has probably been a bit naïve, in as much, that because he is struggling to make ends meet with mortgage, bills and general living costs, he started working at week-ends to earn extra, and of course, IVA saw the raise in income, and raised monthly payments., although his actual basic wage has not increased much over the 4 years. Looking at some comments on this subject on his behalf, I have seen, that if someone works overtime, they are entitled to keep 10% of the extra and only pay half of the remaining amount towards the IVA, yet they haven't explained none of that to my friend. Not having a clue about these issues, I must say that it sounds very similar to the PPI situation, in as much, it wasn't explained clearly the costs, at the time of sign up'

[Foggy]

Hi Foggy, Thanks for your reply. My friend said there was no mention of how much the fees would be to the IVA providers, in terms of a stated amount, i.e, total fees £3,000 for running the debt, for example. It said something about a % on the first review, but gave no indication it would amount to near 90% value to the debt itself. I think by what you say, my friend has probably been a bit naïve, in as much, that because he is struggling to make ends meet with mortgage, bills and general living costs, he started working at week-ends to earn extra, and of course, IVA saw the raise in income, and raised monthly payments., although his actual basic wage has not increased much over the 4 years. Looking at some comments on this subject on his behalf, I have seen, that if someone works overtime, they are entitled to keep 10% of the extra and only pay half of the remaining amount towards the IVA, yet they haven't explained none of that to my friend. Not having a clue about these issues, I must say that it sounds very similar to the PPI situation, in as much, it wasn't explained clearly the costs, at the time of sign up'

PPI wouldn't have been explained specifically, being a new beast at the time, but captured as an after acquired asset, which is laid out in the body of the agreement. Yes, overtime is treated under the 10% 50/50 rule, as you describe (sometimes it is a straight 50/50, as it was in my case). This, again will be detailed in the body of the agreement. The fees form part of the agreement and would have been laid out in full ... I fear your friend simply did not fully understand what they were signing up for before doing so. Usually fees are a set amount for the nominees fee (setting up the IVA) and then a percentage of the monthly payment going forward (typically 15%, although some charge in excess of 20%).
Do you know which company this is ?

[john146]

Hi Foggy, Thanks for your reply. My friend said there was no mention of how much the fees would be to the IVA providers, in terms of a stated amount, i.e, total fees £3,000 for running the debt, for example. It said something about a % on the first review, but gave no indication it would amount to near 90% value to the debt itself. I think by what you say, my friend has probably been a bit naïve, in as much, that because he is struggling to make ends meet with mortgage, bills and general living costs, he started working at week-ends to earn extra, and of course, IVA saw the raise in income, and raised monthly payments., although his actual basic wage has not increased much over the 4 years. Looking at some comments on this subject on his behalf, I have seen, that if someone works overtime, they are entitled to keep 10% of the extra and only pay half of the remaining amount towards the IVA, yet they haven't explained none of that to my friend. Not having a clue about these issues, I must say that it sounds very similar to the PPI situation, in as much, it wasn't explained clearly the costs, at the time of sign up'

PPI wouldn't have been explained specifically, being a new beast at the time, but captured as an after acquired asset, which is laid out in the body of the agreement. Yes, overtime is treated under the 10% 50/50 rule, as you describe (sometimes it is a straight 50/50, as it was in my case). This, again will be detailed in the body of the agreement. The fees form part of the agreement and would have been laid out in full ... I fear your friend simply did not fully understand what they were signing up for before doing so. Usually fees are a set amount for the nominees fee (setting up the IVA) and then a percentage of the monthly payment going forward (typically 15%, although some charge in excess of 20%).
Do you know which company this is ?

I think your right, my friend certainly did not understand. This was all done by phone, and online, so they never spoke face to face with anyone. The company is Harrington Brooks. When he phoned, he gets mixed answers, depending who he speaks too. One said that the amount he is paying, does not sound right, and another says it's a complicated procedure. He filled in the latest review form yesterday, so if they base the payments on his income as it stands, then they are not considering the overtime as a separate amount, and just looking at the whole amount as normal income. The 5 years are up in May, and at the present rate, they will be taking another £6,000 off him, making £19,000 paid on a £10,000 debt, which must mean, the company are taking as much as the actual debt, and I feel that they mislead when they talked about fee's when my friend originally thought he would only be paying £100 p/m for 5 years, and thought they would just take a small percentage of the £100 each month for their fee. Without seeing his paperwork, and trying to at least form an opinion on what I would do, my instinct is to tell him to cancel payments, and seek legal advise, but although on the phone, he was told the actual debt is now cleared, I fear that because it's still within the 5 years, it might null and void the whole agreement, and plunge him back to where he started. I understand you only give an opinion, based on your own experiences, but what do you think as to that course of action? Do you think he should just continue paying until May, or challenge something he feels uncomfortable with, and trust that the company are within their rights? It seems there IVA companies, gain custom by convincing people, that they would not even pay their full debt, and after the 5 year period, all remaining debt would be wiped clean, but far from leaving any unpaid debt, he is paying near double his debt.

[Foggy]

The total amount to clear the debt sounds about right. But, I think that maybe the payments he is making are too high and based on the wrong income. When he gets overtime is he telling the IP each month? What is supposed to happen is that he has to declare extra income each month and pay the 50% within 14 days. I suspect that he is not declaring this as overtime and, at the end of the year, they are taking it as regular income. Again this need to declare overtime each month is explained in the body of the proposal papers he signed.

If he had been making payments at the correct level (or what I think is the correct level) he would not have paid in so much and been able to pay the full debt and some would have been written off as expected at the start.

I might be wrong, but my gut feeling is that your friend did not take the time to read and understand what he had to do -- it is HIS IVA, not the IP's. I think you need to get him to speak to Harrington Brooks and refer them to this thread. Hopefully they can re-visit the earlier reviews and see where (if) things went astray. But, I have to say that it does not sound as though Harrington Brooks are the ones at fault here (although they could have queried the reviews as a £500 increase on payments over a few years is extraordinary. Meaning an pay increase in excess of £1000 a month in these austere times!).

[Financial Wellness]

Dear John146,

Thank you for the post, on behalf of your friend. I am one of the team here at Freeman Jones (we recently acquired Harrington Brooks IVA). I will try and answer your points in turn.

For your friend's payments to have increased so much, their income must have increased quite a bit over the term of the IVA. The IVA payments should always be affordable, but the creditors will expect you to pay in as much as you can afford over the term, even if that means repaying the original debt, plus the interest that would have been charged on it. This is the flip side of them being prepared to write off any remaining debt if you can't afford to pay more in.

If your friend is submitting payslips regularly then it should be obvious what their basic income is (the "allowed income"), and what the overtime is. As Foggy as said, they will only have to pay in a % of what they earn over the allowed income (averaged over a number of months). If your friend wants to know how the payment is calculated please ask them to give us a call on 0161 507 0686 and a Relationship Manager can run through it with them.

As to the fees, these will have been set out at the time they started the IVA. Broadly speaking the fees that most IVA firms charge are similar, this is because the creditors (in effect), control them as if they think the fees are too high then they won't vote to agree the IVA.

As I said, please ask your friend to speak to a Relationship Manager and we can check the details and ensure that the payment is set correctly and generally explain things.

I hope that helps,



Ian

[john146]

Dear John146,

Thank you for the post, on behalf of your friend. I am one of the team here at Freeman Jones (we recently acquired Harrington Brooks IVA). I will try and answer your points in turn.

For your friend's payments to have increased so much, their income must have increased quite a bit over the term of the IVA. The IVA payments should always be affordable, but the creditors will expect you to pay in as much as you can afford over the term, even if that means repaying the original debt, plus the interest that would have been charged on it. This is the flip side of them being prepared to write off any remaining debt if you can't afford to pay more in.

If your friend is submitting payslips regularly then it should be obvious what their basic income is (the "allowed income"), and what the overtime is. As Foggy as said, they will only have to pay in a % of what they earn over the allowed income (averaged over a number of months). If your friend wants to know how the payment is calculated please ask them to give us a call on 0161 507 0686 and a Relationship Manager can run through it with them.

As to the fees, these will have been set out at the time they started the IVA. Broadly speaking the fees that most IVA firms charge are similar, this is because the creditors (in effect), control them as if they think the fees are too high then they won't vote to agree the IVA.

As I said, please ask your friend to speak to a Relationship Manager and we can check the details and ensure that the payment is set correctly and generally explain things.

I hope that helps,



Ian

Hi Ian Thanks for your input. I haven't had time to speak to my friend, for the last few days, but as far as I can gather, he has not known he has to declare overtime. I believe they just see his wages each month, and take it as his salary, His overtime is based on when he works week-ends, at overtime rates, and are there when available, but not a guaranteed regular overtime. I don't think they see his payslip's each month, but can see his bank balance, and judge he has a high basic, I presume. Anyway, I will explain to him he needs to point out his basic, and overtime as 2 separate amounts, and see what they say. As I have mentioned, I don't think his basic has changed a great deal from when his IVA started, but his overtime can be quite high, as it's paid at time & half, or double time on Sundays. Just a question, if he stopped doing overtime now, would his payments drop drastically, and would he only be paying the fee's until May, as described in my comments to Foggy? Once again, Thanks to you and Foggy for your comments.

[Financial Wellness]

Dear John146,

Thanks for the reply. How much your friend's IVA payment would drop if he stopped doing overtime would depend on his allowed income, and how big the overtime was. It is certainly worth him speaking to us and providing wage slips so we can have a look at this for him.

There will be a limit to the amount that your friend has to pay into the IVA. This will be the total of the creditors' claims, plus fees, plus statutory interest (if this was included in the IVA proposal). The best thing is for your friend to speak to us and we can set that out for him (in writing) so he can see exactly where he is at, and when his IVA will successfully conclude.


Ian

[john146]

Dear John146,

Thanks for the reply. How much your friend's IVA payment would drop if he stopped doing overtime would depend on his allowed income, and how big the overtime was. It is certainly worth him speaking to us and providing wage slips so we can have a look at this for him.

There will be a limit to the amount that your friend has to pay into the IVA. This will be the total of the creditors' claims, plus fees, plus statutory interest (if this was included in the IVA proposal). The best thing is for your friend to speak to us and we can set that out for him (in writing) so he can see exactly where he is at, and when his IVA will successfully conclude.


Ian

Hi Ian, When I get the chance, I will show my friend all the points and comments Foggy and yourself have provided. Again, by what he understood, he was £10,000 in debt, and was told that there was NO interest on the £10,000. It was the sum owed, and the sum to be paid as a debt. One last question, if I may. He has been told on phone, that the £10,000, has now been paid, and the actual debt is cleared, so if the fee's the providers take for their costs, is a percentage of the amount p/m paid in each month to service the debt, how does it follow, that they still take a fee when there is no debt payments remaining for them to take a % of each month? To be honest, I think a lot of the jargon goes over his head when talking on the phone. He has spoken to many people from the providers, who give him different messages, and that confuses him more, and tends to lead to the conversation becoming heated, and as you will know, when that happens, you will not even be aware of most of the points being made, and as I say, will go over the head......Thanks again.

[Foggy]

Fees are usually accounted for first and the balance paid to creditors. If he has covered 100% of the original debt, the fees would have also been covered and now they are chipping away at statutory interest. When you enter an IVA contractual interest, between you and the various creditors, which typically ranges between 20 and 40%, is frozen and no interest is added to the debt, or figured in the payments ... until such time (as happens not that often) as the full debt is repaid ... then .. statutory interest, currently 8%, kicks in.

Personally I find this a bit of a kick in the teeth ... you have done very well and, as a reward, you can pay more ! But, this is not the fault of the IP, it is, as they say, the system. Some firms do exclude statutory interest in the proposal at the outset, but not all, and, of course, the creditors sometimes put it back in as a condition of acceptance.

Maybe your friend will find it easier to assimilate this by reading this thread. I, like him, get really frustrated on the phone when not given the time to think !

[john146]

Fees are usually accounted for first and the balance paid to creditors. If he has covered 100% of the original debt, the fees would have also been covered and now they are chipping away at statutory interest. When you enter an IVA contractual interest, between you and the various creditors, which typically ranges between 20 and 40%, is frozen and no interest is added to the debt, or figured in the payments ... until such time (as happens not that often) as the full debt is repaid ... then .. statutory interest, currently 8%, kicks in.

Personally I find this a bit of a kick in the teeth ... you have done very well and, as a reward, you can pay more ! But, this is not the fault of the IP, it is, as they say, the system. Some firms do exclude statutory interest in the proposal at the outset, but not all, and, of course, the creditors sometimes put it back in as a condition of acceptance.

Maybe your friend will find it easier to assimilate this by reading this thread. I, like him, get really frustrated on the phone when not given the time to think !

Hi again Foggy. The moral of the story is of course, fully read and understand the terms and conditions of Any contract you enter into, which obviously hasn't happened here. I, personally, would like to think I would have checked every nook and cranny of the agreement, and I would most certainly have queried any changes as and when they appeared as the IVA progressed, and made sure I understood the reasons for any change. As you say, It's not the fault of the IP, but a system that allows a 5 year termed debt to be repaid earlier than stated, which allows the IP to make a lot of money, because the contract remains a 5 year deal. I feel when people are looking at IVA's, It should be highlighted, as a main concern, that a holder could end up paying a whole lot more than the actual debt, and not hidden in the jargon of %ages. Example, If your told that you will pay a total of £15,000 to service a £10,000 debt, that goes the full term, then it is clear from day one. By using a percentage, It's not clear what you will end up paying, as the m/p can change, as in this case. It's always beholden to the customer to understand, so life's a lesson, and we can all learn, I guess....