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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14 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.

    Jean says:

    I started a new job 6mths ago. It was a slight increase in salary but i have further to travel so petrol cost is higher. I have not informed my iva company will i get in trouble for this. I only owed £5000 and pay £59pm. I have had £2000 in PPI go to my creditors. I have 3yrs left paying which means i will have paid heaps more than i owed. Is this right.

      Hi Jean

      If you have a change in salary during an IVA you should inform your IVA company straight away. They will need to do a review of your income and expenses to see if your surplus income has changed in any way. My advise would be to let them know now (don’t wait for your next annual review when they will find out anyway). However make sure they understand that the increase you have received is cancelled out with higher fuel costs.

      I am sure you will not get into trouble. The only time this situation would cause an issue is if your surplus income increased as a result of the job change. This would then mean your payments would have to increase (as highlighted in the above article). If your IVA company did not find this out for a few months you would then be in arrears with your payments.

      If you are paying £59/mth into your IVA then over 60 months (5 years) you will repay £3540. If you add the £2000 PPI then you will repay £5540 so £540 more than your originally owed. This is right and it is how an IVA works. If a windfall like PPI is paid into the arrangement this does not settle the debt. You still have to pay unless the windfall was enough to pay the total of all the debt + the IVA company fees + interest on the original debt at 8% pa frm the start of the IVA.

    Alice says:

    Hi I have an IVA and have been offered the chance to make some extra money on top of my current salary. This will be self employed income and is not a guaranteed amount each month. How much of this will I need to pay towards my IVA and how much can I keep.

    Also this extra income has the potential to be quite a lot a month at times, if I manage to make enough extra to pay money owed can my IVA end early? Do I have to pay IVA agreed amount only or full original debt plus fees and interest.

      Hi Alice

      The answer to the first part of your question depends on how regular the extra income is. If it is every now and then at first then it will be treated like overtime. Each month you earn any extra the first 10% over and above your normal take home pay would be yours to keep. After that 50% of the rest has to be paid into your IVA. Given it is self employed income then of course you would need to hold back an appropriate amount for tax before doing this calculation.

      Remember you MUST tell your IVA Company each time you earn any extra so they can tell you what you need to pay so you don’t get into arrears.

      If your extra income starts to become regular your IVA company might decided that it should be treated as a simple increase in income. They will then want to do a full income and expenses review. If this happens you need to take an average of the extra you have earned (say over the last 6 months). This would then be added to your original income figure. Once your living expenses are deducted if your surplus has gone up this will be your new IVA payment.

      In reference to the second part of your question any extra you pay into your IVA will not normally mean it is paid any earlier. It simply means your creditors get more back. The only time it would complete early is if you earn so much that as you say you manage to pay the full original debt + IP fees + interest charged on the original debt at 8% pa from the start date of the IVA.

    Anita says:

    I am retired and just been awarded additional pension credit – is this disregarded as income in my IVA similarly as the DLA benefit I receive?

      Hi Anita

      A pension credit is regarded as income in your IVA. It is not the same as DLA. As such if you are now receiving an increase in your income due to a new pension credit you must inform your IVA company of this. They will need to assess the impact of this on your income and expenses budget. However your payments could increase as a result of the change.

    Nikki says:

    Hi, my husband possibly has a chance of a new job, the pay will increase substantially. We are currently in a joint IVA (for the past 18 months) and pay £70 per month. My husband currently earns around £23000 per year, this possible job could earn £49000, he would be living away from home for 9 days out of 12. How would this affect our current IVA? Very confused on how this would work.
    Thanks

      Hi Nikki

      If your husband gets this pay increase it will almost certainly mean an increase in your IVA payments. Because the household income would permanently change you would need to submit a new income and expenditure budget to your IVA company.

      You would need to include your husband’s new take home amount in the income section and any changes / increases to your living expenses in the expenses section. These new figures are then used to calculate a new new household surplus income.

      The new surplus income will be what you have to pay into your IVA going forward. If this new surplus figure is larger than the amount you are currently paying then by definition your payments will go up.

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