If you are in an IVA and you earn overtime or a bonus you must tell your IVA company ASAP. But how much of it will have to paid into the Arrangement?
Jump to article contents:
- What happens if you get occasional overtime
- Income made up of regular overtime
- Can you keep an annual bonus
- Will your IVA be paid more quickly
What happens if you get occasional overtime during an IVA?
Once you are in an IVA you may think the monthly amount you pay into it is fixed. This is not the case. If you are able to pay more because your income increases for any reason your payments can also go up.
The same applies if you earn overtime or get a bonus in any particular month during the plan. Some of the extra money you have earned will have to be paid into the Arrangement. The good news is not all of it. You get to keep anything extra you earn up to 10% of your normal monthly take home pay. However anything over 10% is split 50/50 between you and your IVA.
So if your standard income was £2000 a month, you could earn up to £200 (10%) in overtime or a bonus each month before sharing any with your IVA. However if you earned more for example £400, the first £200 you keep. The next £200 is shared: £100 you keep and £100 is paid into your IVA.
Its very important to report additional income to your IP within 14 days of receiving it. If you don’t and let it build up you risk falling into arrears. It will be discovered at your annual review regardless.
Income made up of regular overtime
You may have a job where you are used to earning regular overtime or some kind of bonus every month. This will normally mean that your monthly take home pay changes all the time.
If you always earn ‘extra money’ it will be counted as part of your regular income. Your IVA company will account for this by taking an average of what you have taken home over the last 6-12 months. This average figure will then be used as your income when calculating your regular monthly IVA payments.
Regular overtime or commissions that are counted as part of your standard income are not be subject to extra scrutiny each month. But remember if you start to earn more than your agreed average income, you must disclose this.
If you have regular additional income, check it every month. Make sure that it is not exceeding your ‘average income’ identified at the start of the IVA. Always keep your IVA Company in the loop.
Can you keep an annual bonus during your IVA?
If you receive an annual or quarterly bonus during your IVA you will have to pay some of this into the Arrangement. The bonus covers a period of time which is longer than a month. However the amount you have to hand over is calculated in the same way as if it had been for a single month.
In other words you keep up to 10% of your normal monthly take home income. Half of anything over that has to be handed over. So for example if you receive a bonus of £3000 and your monthly take home is £2000 you keep the first £200 (10%). The remaining £2800 is split 50/50 and you have to pay £1400 into your IVA.
This calculation may seem a bit harsh, but remember what the IVA deal is all about. You sign up to paying as much as you can afford for the term of the IVA. Only the amount remaining unpaid at the end is written off.
If you are able to pay more into your IVA due to earning overtime or a bonus the amount of debt written off during the Arrangement will fall.
Will your IVA be paid more quickly if you pay more in?
A common misunderstanding is that if you pay extra funds into your IVA it will finish early. This is not the case. The monthly payments agreed at the start are the minimum pot of money the creditors will accept.
On signing up you agree to pay extra if you can afford it. Getting overtime and bonuses mean you can afford to pay extra. The result is that your creditors will be repaid more of the money they are owed. Your IVA is not paid any faster.
The only time your IVA might end early is if the bonus amount you receive is very large. It would need to be sufficient to repay your original debt in full (less payments already made) plus fees and interest.
If you can afford extra payments during your IVA you will have to pay them. However if your income stays the same you will not have to pay more. You are released from your remaining debt at the end of the IVA. That’s the deal.