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 however is not the way an IVA works. If your payments increase the number of outstanding payments remain the same. The increase simply means that you pay more into the plan and your creditors receive more of the money they are owed.

The terms of most IVAs state that if possible (because of a wage increase or the like) you are obliged to pay 100% of the original debt you owed plus IP fees plus interest. The Arrangement will only finish early if all these amounts have been paid before the end of the agreed payment period.

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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44 thoughts on “Pay Increase during an IVA

    Anna says:

    Hello

    I am earning 1700 per month net now, but new job if I get it would be 2300 per month net. How is it worked out with my IVA? Also, I have xmas presents I need to buy for, and a tax bill to pay in Jan (£300) and another next year of approx £1500 – am I able to keep any extra income for these bills? Is there a way of being able to keep some of the increase in salary if I do get this job?

    Thanks so much

      Hi Anna

      Normally the terms of your IVA will state that if you get a pay rise (either with your current employer or as a result of getting a new job), your IVA company have to do a full review of your income and living expenses. They will calculate your new surplus income. Any extra surplus you have as a result of the pay rise is split 50/50 between you and your IVA.

      For example, lets say your original payment (surplus income) was £200/mth. But now given your pay rise, your surplus is £500/mth, the extra is £300. This is split 50/50. So your payment will increase by £150 to £350/mth. You can keep the other half of the extra (in this example £150/mth) to buy Christmas presents or do whatever you like with. This is described in more detail in the 2nd section in the article above.

      In terms of the tax bills you will need to discuss these with your IVA company. Why are you getting tax bills? Are you self-employed? If so a provision for saving for tax should have been built into the agreement.

    AR says:

    Hi, I’m potentially due a wage increase this month meaning I’ll get around £300 exta in my salary, I currently pay £123 but have also recently moved house and now need to run and pay for a car. I’ve already paid 24 months at £123 so if my monthly contribution were to increase to £273 x the remaining £36 months this would far overpay my initial debt + the interest. Is this how it would work or would the IVA company take into account the remaining balance?

      Hi AR

      If your income goes up during your IVA then your monthly payments may also increase. However the change can only be calculated after a full review of your income and expenses budget. If you have recently moved and you now need to run a car, all of these changes in your expenses need to be considered as well as the increase in your income.

      I suggest you speak to your IVA company, confirm the changes and do a review of your income and expenses budget with them. Once this is done your revised disposable income can be calculated.

      If your disposable income has gone up overall, 50% of the extra will be added to your IVA payment. If this increase means that you will end up paying more than your original debt, this is what will happen. Your IVA company is allowed to take up to 100% of your original debt + their fees and interest charged to the debt from the start of the IVA.

      If when you have reviewed the figures, the total amount you will repay is much more than your original debt, the only alternative option you can consider is to stop your IVA and use a different debt solution. My recommendation is to do the review with your IVA company first. Find out exactly how your payment will change. Then if you are unhappy, by all means give me a call at IVA Information (0800 022 4712). I would be happy to discuss your options with you.

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