There is no standard IVA payment. The amount is based on what you can afford. In addition, the total you will repay during the Arrangement is not fixed and can go up.
Included in this article:
- What is the normal IVA payment?
- How much of your debt will you repay?
- Will you ever have to repay more than your total debt?
- Options if you have to pay more than you originally owed
What is the normal IVA payment?
There is no normal or standard IVA payment. The payment is not based on the amount you earn or receive in benefits.
What you pay is based on your surplus income. This is the remainder of your monthly income after all of your living expenses have been deducted.
Because your payment is calculated in this way, it means that the amount you pay is likely to be different to someone else in an IVA who has the same amount of debt as you. You may end up paying back more or less than them.
All of your surplus income has to be paid into your Arrangement each month. You are not allowed to hold any back. It’s therefore really important that you include enough to cover all the expenses you need (including things like hobbies and entertainment) when you complete your living expenses budget.
Your IVA payment will normally have to be at least £100/mth. The only time it may be possible to start below this minimum is if you expect your payments to increase during the plan.
How much of your debt will you repay during an IVA?
In the same way as there is no standard IVA payment, there is also no standard amount of debt that is paid back in an IVA.
The figure of 75% of debt will be written off is often advertised by IVA companies. However this is misleading and is often not true. The amount written off varies depending on how much you pay into the agreement.
When you start, you may work out that based on your agreed payments, you will pay back 50% of your debt. You might then be told that 50% of your debt will be written off. This sounds great. But you also need to remember that your payments can (and often will) go up during the Arrangement.
If your surplus income increases (because your income goes up or your expenses go down) your monthly payment will also go up. If you get any overtime or bonus, 50% has to be paid into your IVA.
An increase in your IVA payment does not reduce the length of the agreement. It simply means you end up repaying more of your debt.
Will you ever have to pay more than the total debt you owe?
The idea of an IVA is to repay as much as you can over a fixed period. Any amount outstanding at the end of the agreement is written off. However, you could end up paying 100% of the debt you owe and in some circumstances, even more.
This is because the terms and conditions (the small print) you sign up to state that if you are able, you must pay up to 100% of the original debt you owed.
Buts that’s not all. If your IVA payment has gone up and you can repay 100% of your original debt before the end of the agreement, it doesn’t stop there. You have to keep paying because you also have to cover the fees and charges issued by your IVA company. In certain circumstances, extra interest could also be added.
This is not something that happens very often. The majority of people who do an IVA end up paying less than they originally owed. But it is a possibility to be aware of.
If you know your income is likely to increase during your IVA, make sure you understand what this will mean in terms of the amount you will repay overall.
Options if you have to pay more into your IVA than you originally owed
You may have already started your IVA, but because your payments have gone up, you are now now looking at paying more back than you originally owed.
One of the main reasons you started the Arrangement was to have debt written off. So staying in it now probably doesn’t make any sense.
In these circumstances you can cancel. But before doing so, think about the implications carefully.
Some (if not all) of the money you have already paid in will be taken by your IVA company. As such your debts may not have reduced by that much. You will still be liable to pay them so you will need a plan in place to do this.
Depending on your circumstances, it is likely you will have two options. First, you might now have sufficient money to repay your outstanding debt yourself. Alternatively, it might work out cheaper to go bankrupt. This would mean you will only have to make payments towards your debts for a maximum of 3 years.
Need more advice about your IVA payment and the amount you are likely to pay towards your debt? Give us a call (0800 011 4712) or complete the form below. Its free and confidential.