Pay Increase during an IVA

Pay Increase during an IVA

If you get a pay increase during an IVA you should be able to keep some of the extra money you earn. However your payments may also go up.

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Will your IVA payments go up after a Pay Increase?

An IVA normally lasts 5-6 years. During this time your income may permanently increase. The most likely reason for this is a pay increase but your other forms of income such as a pension or benefits might also go up.

In these circumstances the amount you are required to pay into your IVA each month could rise. However this is not automatic. It will only happen if your disposable income improves.

Your disposable income may not necessarily go up after a pay rise. For example a new job may also result in extra child care costs. These will supress any rise in disposable income and possibly cancel it out altogether.

Your IVA payments may not go up after a pay increase. They will remain the same if after accounting for changes in your living expenses your disposable income has not changed.

How is any additional IVA Payment calculated?

As soon as you receive a pay increase or any other permanent improvement in your income you must inform your IVA Company. They will then ask you to submit a new income and living expenses budget.

This will be reviewed to determine whether or not your disposable income has gone up. If it has then your IVA payment may also rise. However the rise in your payment will be less than the rise in disposable income.

This is because the terms of most IVAs state that you can keep 50% of any increase due to a rise in income. As such if your original disposable income was £100/mth and this has now risen to £200 a month your IVA payment will rise by just £50 to £150 a month.

Tell your IVA company about any pay increase you receive straight away. Do not wait for your next annual review. If your payments have to rise any delay will mean you get into arrears.

Does a Pay Increase mean your IVA finishes sooner?

If your payments go up as a result of a pay increase you may think that this would then reduce the length of your IVA. It would seem logical as the amount you originally agreed to repay during your Arrangement will be paid faster.

This is however not the way an IVA works. If your payments increase the number of outstanding payments remain the same. The Arrangement does not become shorter and is not settled any earlier.

The additional amount paid in as a result of the increase simply means that your creditors receive more of the money they are owed.

An IVA can be settled early. However this will require you to offer a cash lump sum instead of your ongoing payments.

What if you earn Overtime or a Bonus

A one off overtime or a bonus payment is not regarded as a permanent pay increase. The extra money you get will not necessarily be replicated in following months. As such these payments are treated differently.

Where the overtime or bonus is 10% or less of your normal monthly take home pay you can keep the extra money. However where it exceeds 10% you must pay 50% of the excess into into your IVA.

In other words if your normal take home pay is £1000 and you earn up to an extra £100 (10%) in any particular month you can keep this money. However if you earn £300 more you keep £200. The other £100 must be paid into the agreement.

You will normally have to tell your IVA Company within 14 days if you earn overtime or receive a bonus. The amount you have to hand over will then be calculated.

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6 thoughts on “Pay Increase during an IVA

    Azza says:

    Is this before or after tax ie take home 1000 earn 150 in overtime but only take home 1100 after tax

      Hi Azza

      When you are considering your income for an IVA you always consider only the amount after tax. As such when calculating whether you will have to hand over any of the overtime you have earned in any particular month you use the figure after tax. So if your regular take home income is £1000 and the additional overtime after tax is £100 then you should be able to keep all of this as it is no more than 10% of your regular take home income.

    Jane Jones says:

    Just wanted to clarify bonus payments. If you receive a bonus for the entire year in one months payment do you still need to give 50% to your IVA company? For example you get 4% of your annual wage paid to you so extra £1000 in your monthly wage, rather then bonus payment of £80 per month

      Hi Jane

      This is a very important question. The answer is yes you will still need to give 50% to your IVA company. The amount of the bonus you have to hand over is calculated based on the take home pay you receive in the month you receive the bonus (not over the whole year).

      In other words if your normal take home is £1000 and you receive an annual bonus of £1000 (after tax) in that month you will have to hand over £450 (£1000 less £100 (10%) = £900 divided by 2 = £450).

    Stephanie Malam says:

    Hi, I’m currently in an iva, we pay 258 pcm and we have been advised we will be paying all of our debt back. So my question is, when my partners car payments have finished. Will she still need to put 50% of the payment towards the iva each month? Or would this not be the case considering we are paying the full balance of our debts back?

      Hi Stephanie

      This situation is not straight forward as there are a number of variables to consider.

      Firstly is your partner’s car on HP or a lease agreement like PCP? If it PCP then she will need to retain all of the money to pay the ongoing finance on a new car (assuming she needs a car). If it is an HP agreement when her payments end she will then own the car. If she were in an IVA then 100% of the monthly payment that was going towards the car would then added to the IVA payment. If this were to happen then on the face of it she would end up paying more than she owed. This could happen because the terms of the IVA would state that where possible 100% of the debt + Fees + interest (8% per year from the start of the IVA) could be collected.

      Having said that you mentioned that it is you who is in the IVA not your partner. As such if she has a car payment which ends during your IVA then this money in theory is hers not yours and so cannot automatically be claimed by the IVA. However this will all depend on how the monthly payments have been calculated….

      If the payments into your IVA are based on the total household surplus then they are likely to increase by 100% of the car payment. However if only your share of the surplus is being paid into the IVA then once the HP is finished the household income and expenses budget would have to be revised based on this change and the household surplus recalculated. If your share of the surplus increases as a result then your payments would then rise accordingly.

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