Pay Increase during an IVA

15/06/2023
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?

Your income is likely to go up during your IVA. A common reason for this is you get a pay increase. Either your employer pays you more or you get a better paid job.

You might also have other types of income which increase such as pension or benefits payments.

If you do start earning more during your IVA, your monthly payment amount may also go up. However, the change is not automatic. It will only happen if your disposable income improves.

Your payments will not change if, after accounting for changes in your living expenses, your disposable income remains the same.

Struggling to get your head round all of this? We can help. Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

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. Do not wait for your next annual review.

You will then be asked to submit a new income and living expenses budget. This will be reviewed.

If your disposable income has gone up, 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.

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 must tell your IVA Company within 14 days if you earn overtime or receive a bonus.

Unhappy that your IVA payment has gone up after a pay increase? For free confidential advice, give us a call (0800 011 4712) or complete the form below.

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62 thoughts on “Pay Increase during an IVA”

    Beverley says:
    03/07/2020 at 16:31

    I have an iva currently running I have been diagnosed with bone cancer it is not curable my pip has increased and I have had a back payment I have been scrapping by on my money and this will make a difference to my standard of living will my iva payments increase

    Reply
      James Falla says:
      03/07/2020 at 16:37

      Hi Beverley

      Sorry to hear about your situation. In theory your IVA payments should not increase if you have had an increase in your PIP. This is because it is money awarded to you to pay for the extra costs associated with your illness. As such on paper you should not have any real change to your surplus income.

      Hopefully your IVA company will see it that way. You will need to discuss it with them and see what they say. If the demand that you increase your payments, please give me a call (0800 011 4712) and I will be happy to discuss your options with you.

      Reply
    Davie says:
    17/07/2020 at 12:42

    I’m already in an IVA with payplan. My expenses will drop from September when I no longer have to pay maintainance of £300/mth so I will have a rise in disposable income. Should that be seen as the equivalent of an income rise (only 50% if the increase taken) or will this all be taken due to it being an expense drop rather than income increase?

    Reply
      James Falla says:
      17/07/2020 at 16:29

      Hi Davie

      If your child maintenance (or any other significant expenditure item) comes to an end during your IVA, PayPlan will expect 100% the extra cash which is freed up to be paid into your IVA. At the end of the day you are no better or worse off. The payment just goes to your creditors rather than your ex.

      This is fair and reasonable. The terms of an IVA are such that if you can increase you payments during the Plan and thus repay more of the debt you originally owed, this is your obligation.

      Reply
    David says:
    07/10/2020 at 09:17

    Hi my wife is in an IVA and the payments where calculated on a salary of £28K. She has been made redundant and has a job offer with a salary of £35K. Will her IVA be recalculated on the £35K or will her original set up stay the same with her paying 50% increase of the difference in salaries. Hope that makes sense.

    Reply
      James Falla says:
      07/10/2020 at 09:33

      Hi David

      The answer to your question very much depends on the specific terms of the IVA your wife has signed up to. That said, the norm if someone gets a new job and pay increases as a result, is that it is treated in exactly the same way as a pay increase for a promotion in the same job. In other words, the new surplus income figure is calculated. The first 10% of any increase is your wife’s to keep, the additional is split 50/50 between her and the IVA.

      So normally I would expect that when pay increases for any reason, the process should be exactly the same as outlined in the above article.

      Reply
    Cristina says:
    21/10/2020 at 15:00

    Hi!
    I was advised that IVA is the best solution to pay my debts. I am a student and did apply for a student loan. Does an IVA affect to get a student loan?
    Thanks!

    Reply
      James Falla says:
      21/10/2020 at 19:32

      Hi Cristina

      If you are a student, I would question whether an IVA is the best option for you. You are on a low income so I think you will struggle to maintain the payments for 5 years. I would strongly urge you to consider the other options available to you which would not require you to make monthly payments such as a Debt Relief Order or Bankruptcy. Although these options sound worse than an IVA, if you have no assets and a low income you have absolutely nothing to lose.

      That said if you do eventually decide to use an IVA you will have no issue in applying for a student loans during the Arrangement. Student loans are not technically credit and applications are based on your eligibility as a student, not on your credit worthiness.

      Reply
    Stephen says:
    24/11/2020 at 17:33

    If someone is in an iva and there car is finished their payments do I have to pay the extra money to my creditors

    Reply
      James Falla says:
      24/11/2020 at 17:59

      Hi Stephen

      If you have a car on finance and the payments finish during your IVA, the standard procedure would be to add the extra money you are now saving to your IVA payments.

      The only time this is not the case is if it was specifically written into your IVA agreement at the beginning that you could keep the funds to use to continue funding a car. For example to refinance a balloon payment for the car or start a new finance agreement.

      Reply

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