When considering an IVA, it is natural to think about how you will live and what you will be able to afford during the five year IVA period. An IVA is one of the most affordable debt solutions available, but what does that mean for you personally? In this section, we will discuss how much an IVA will leave you to live on so you can make the best decision for you.

First of all, it is always a good idea to cover the basics of what an IVA is and you can find a comprehensive guide here.

When answering the question of how much would an IVA leave you to live, it really does come down to individual circumstances, but one key rule of an IVA is that it is calculated based on what you can afford rather than how much debt you owe. During the application process our advisors will take you through an income and expenditure questionnaire to discover what you can realistically afford each month. 

At each stage of an application, a vital part of the process is that we are not setting you up to fail. If we don’t think you can afford an IVA, we won’t allow you to start one and we will discuss other options.

How Do We Calculate What You Can Afford?

The first thing we do is talk about your monthly income: How much it is, where it comes from and whether there is a known significant risk that it might stop or be reduced.

We then discuss all of your fixed essential outgoings including, mortgage or rent payments, utility bills, food costs and any secured debt repayments that wouldn’t be allowed to be part of your IVA. By subtracting your outgoings from your income, we can calculate your disposable income and therefore what you can afford to put towards your IVA each month. 

As well as ensuring that you can afford the IVA and that it has a great chance of lasting its full five year term, we also have to consider the interests of your creditors, since they also have to agree to the IVA. 

A simple example of this is that if you earn £1800 a month and your outgoings are calculated as £1600, then you would be expected to pay £200 towards your IVA.

In order to do this we need to ensure that what you can afford each month, once multiplied by five years of your payments, equates to approximately 25% of the overall debt amount you owe. This is usually around the minimum amount they will accept.

Annual Additional  Income Threshold.

Once your IVA has been approved, your Insolvency Practitioner will calculate how much your income could increase by before you would need to increase your IVA repayments. This normally sits at around 10%.

So, if you earn £1000 a month, you would be able to increase that by £100 before you would need to contact you IP and have your payments adjusted.

If your earnings increase by more that 10%, then 50% of the amount that is above the 10% increase would need to be added to your repayments.

That means that if you were earning £1000 a month and your income per month increased by £200, half of that (£100) would need to be added to your monthly repayments.

Can IVA Repayments Be Reduced?

If, once your IVA has begun, you find that you are struggling to make your repayments, then it is possible to have them reduced. 

If you only require a reduction of up to 15%, then this can be done by your IP. If you want to reduce your payments by more than 15%, then your IP would need to get permission from your creditors. This can also often incur a fee.

If you feel like your repayment issues are temporary, then your IP could potentially defer one of your payments, reduce or pause your repayments for a fixed period or, in some cases, even settle your IVA early.