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.

Jump to article contents:

Want help to start an IVA?

Give us a call: 0800 011 4712 or complete the form below to speak to one of our experts

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.

Related Articles

36 thoughts on “Pay Increase during an IVA

    Louise says:

    We are currently in an IVA. We are struggling at the moment and I’m looking to try and get into employment. If I were to gain employment, how much would have to be paid into the IVA

      Hi Louise

      If your income increases during an IVA all the extra you earn does not automatically have to be paid into the Arrangement.

      Your IVA company will first ask you to complete a brand new income and expenses budget to see if your disposable income has changed. This means they take into account any reduction in income due to to a reduced benefits or increase in expenses a result of your new job (for example extra travel costs).

      Once the new disposable income is calculated your payments will only increase if the amount is higher overall and then only by 50% of the increase. So if your original payment was £100/mth and your new disposable income is £200/mth your payment will go up by 50% of the difference to £150/mth.

    Mark says:

    I have been in an IVA for four years, and although it’s been a struggle at times I have never missed a payment. I have struggled to find a job that I am happy in but have recently joined a company that I want to stay with. Part of the salary will be commission and I am concerned that the IVA company will expect to take all of the commission that I earn.

    I have two years left on the IVA and if they are going to take it all I am concerned that it will effect my efforts at work. Is there a maximum that they can take?

      Hi Mark

      There are specific rules to follow if you earn commission (or bonuses or overtime) during an IVA. They work as follows:

      Out of any extra you take home in any particular month you are allowed to keep the equivalent of 10% of your normal take home salary. If the amount you have earned is more than this then the extra is split 50/50 between you and your IVA. As such if your normal take home is £1000 and you earn commission of £200 in any particular month, you keep the first £100. The second £100 is split 50/50. You would have to pay £50 extra into your IVA that month.

    Mark says:

    Many thanks James for the reply.

    My IVA company are telling me it will increase my monthly payments based on the average of each quarter. This is different to what you have said. Are there different agreements in place or should all IVAs the same?

      Hi Mark

      The advice I gave previously is correct if you are going to be earning ad hoc or one off commission / overtime payments.

      However if you will be regularly earning commission every month or quarter then yes this will trigger a whole new review of your income and expenses budget.

      If your average income has increased meaning your average monthly surplus income is higher then yes a new increased monthly payment will be required based on the higher surplus amount.

    Tim says:

    With covid 19 going on I took a mortgage break and have saved some money up. As I have been working all the way through.Its my review can my iva take all the money I have save due to this

      Hi Tim

      Most IVA companies will let you keep any money you have been able to save from your agreed living expenses budget. Given your mortgage payments are part of this budget it follows that if you wish you should not be able to keep this as legitimate savings. That said, if you have been working all the way through and still have the money, I would strongly advise you to call your mortgage company and offer to pay them the lump sum to catch up on the payments you have missed. This should be perfectly acceptable.

    Rose says:

    I am on furloughed now when I start getting my normal pay will i pay the same as I am paying now?

      Hi Rose

      I assume you have been on a payment break from your IVA while you have been furloughed? If so after you get back to work, and given your pay has not changed, your IVA payments should also stay the same. The payments you have missed are normally just added to the end of the arrangement.

      The only time your payments should go up is if your income increases or your expenses fall meaning your surplus income has increased and you can afford to pay more.

Leave a Reply

Your email address will not be published. Required fields are marked *