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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56 thoughts on “Pay Increase during an IVA

    Roland O says:

    It’s been a year, since I started my IVA and in this annual review they want to raise my payments and want me to pay some extra amount, because I was getting more money last year, then I was supposed to. I want it to stay the same, because as I see it, I am still struggling financially and they don’t agree with that.

      Hi Roland O

      A key condition of an IVA agreement is that if you earn more in any particular month, you must declare this to your IVA company immediately.

      If the increase is temporary (for example because of extra overtime worked or a bonus earned) then 50% of this has to be paid to your IVA company (you can earn up to 10% of your regular take home income in any money and keep it). If you did not declare such earnings at the time, you now owe money to your IVA. One way an IVA company can recoup this is to increase your payments.

      In terms of agreeing the way forward with your IVA company, unfortunately this is between you and them. No-one else can intervene on your behalf. If you feel you can’t come to a mutual agreement, your only option is to cancel the whole IVA. You would then have to start again with a different company or use a different solution.

    James says:

    Hi

    I am already in an IVA and have been for 18 months. I am about to get a pay rise and I understand what my IVA overseer will do.
    My question relates to backdated pay rises, my pay rise will be backdated by 3 or 4 months meaning I’ll get a hefty lump sum.
    What will happen to that lump sum as:
    a) it could be classes as disposable but;
    b) it’s my pay rise

    I’ve read that they wouldn’t take more than 50% of a pay rise anyway but if that is true, does that mean they’ll take 50% only if that backdated increase?

    Thank you

      Hi James

      You are clearly concerned that the lump sum you will receive due to the back date pay rise will be considered a windfall and you will lose it all. You don’t need to worry as this should not happen. However you will have to hand over some of it.

      To work out what you have to pay, your IVA company will first have to do a new income and expenses budget based on your new income figure. The resulting increase in your monthly disposable income is split 50/50 (less the first 10% which you keep) between you and your IVA. Your future IVA payment will increase by this amount. The amount of back pay you will have to hand over should be based on the amount your disposable income increases multiplied by the number of months you got back pay for.

      So for example, if as a result of your increase, your IVA payment goes up by £100/mth and your back pay was 4 months, you would have to hand over 4 x £100 = £400

    Matthew N says:

    Hello my wage is about to increase and my income monthly will go from £600 to roughly £1600 … would you recommend increasing my monthly payment or cancelling my iva and deal with creditors separately

      Hi Matthew

      Your income is clearly going up considerably. Whether or not you should stay in your IVA will depend on how much debt you owed at the start and how much you will repay as a result of the increase if you stick with the Arrangement.

      If by sticking with the IVA you will end up paying much more than you originally owed, I would recommend that you consider cancelling it and paying off the creditors yourself. However, if sticking with the Arrangement means you will still pay less than you originally owed, it may well be worth keeping it going.

      If you want more inform on how to stop your IVA and the implications, have a read of this article: Can I stop my IVA

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