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How your monthly IVA contribution is calculated

Before you finally agree to proceed with an IVA you will need to work through a statement of “income and expenditure” with your IVA provider.

On this document will be a record of your regular income and your monthly expenditure required to live reasonably during the course of an IVA. Your essential expenditure will be subtracted from your income to produce a figure known as your “disposable income”.

Your “disposable income” will be the figure used to determine your monthly IVA payment. The figures on this record of your income and expenditure will also be reviewed by your creditors who will want to understand that your proposed repayment is fair to them and sustainable for you.

What is the purpose of IVA expenditure guidelines?

If your creditors review your IVA proposal and consider that you can afford to pay more towards your debts they are likely to reject your IVA. This doesn’t however mean that they will wish to look at each entry in-depth as such a process would merely cause them expense and result in a delay in the commencement of payments to them.

As such, commonly understood guidelines are produced that both creditors and IVA companies use when creating and approving IVA proposals. These guidelines enable creditors to judge that they are being treated fairly. The IVA expenditure guidelines also serve as a tool for the IVA company and their client to agree a monthly IVA payment that is affordable and sustainable.

The CCCS help in the production of these guidelines. From time to time a panel of interested persons and organisations review the IVA expenditure guidelines to ensure that they remain a fair reflection of the changing costs of goods and services in the UK. Once the figures are updated they are distributed to debt advice and creditor organisations for their use in putting together IVA and other types of debt repayment proposals.

Are all types of expenditure covered in these guidelines?

Not every type of expenditure is specified in the guidelines. Payments for mortgages, secured loans, property rental or council tax are examples of some that are not included.

These types of expenditure are left out as the actual costs differ hugely from one family to the next and from one region of the UK to another. They are also areas of spending that cannot easily be changed.

Typically hire purchase payments for vehicles are not included in the guidelines but they might cause an issue if they were considered to be excessive by any particular creditor.

Things covered by IVA expenditure guidelines

Most types of expenditure that we all have are included in the guidelines. Examples of included items are food, clothing, utility bills, travel costs, insurances and medical and dental costs that can be predicted.

Some costs that are included are allowances for social activities, educational activities for children, childcare expenditure, haircuts, dry-cleaning and magazines/newspapers.

Generally a contingency/emergency budget should also be set to allow room to pay for unexpected or unpredictable expenditure that will occur from time to time.

Covering irregular costs

Allowance also has to be made for things we all spend money on, though we do not have to spend this money on a weekly or monthly basis.

Obvious examples will be maintaining vehicles and getting an MOT, car taxation and repair costs that will arise from time to time on a home. Monthly amounts should be set aside in the budget (and in reality) to cover these costs when they come up.

Establishing a fund for this type of expenditure is important. We suggest that a second bank account is opened and that money is set aside each month (from the budget) so that cash is available for these types of costs when it is required.

Are IVA expenditure guidelines specific amounts?

The guidelines do not generally suggest specific figures for expenditure. They set ranges of expenditure within which the spending will be considered to be reasonable by creditors and allow the debtor to live reasonably during the IVA.

The use of such expenditure ranges allows for differences in the priorities that people have and the way that they choose to live their lives.

Expenditure guidelines for couples

If only one person out of a couple is considering an IVA, a full record of the full household income and expenditure will be taken. This helps the IVA company to establish the full household surplus income before working out an acceptable IVA payment.

The surplus, also known as “disposable income”, will then be split amongst the two earners. Generally this will be split along the lines of the proportion of household income that each earns.

Therefore, if both individuals earned the same salary, the disposable income would normally be split in half. If both individuals were looking to start an IVA their IVA payment would be half of the total household disposable income. If only one person were looking to start an IVA it is likely that 50% of the household disposable income would become their IVA payment. The other individual would be free to spend their share of the disposable income as they wish.

Where one partner earns considerably more than the other the calculation would be different. If person A (who was considering an IVA) earned twice as much as person B (who had no debts) the split of the household disposable income would be changed. Person A would be deemed to be earning 67% of household income and paying 67% of household expenditure. They would be expected to pay 67% of the household disposable income to their IVA. Person B would retain their 33% to spend as they choose.

This system should ensure that each person pays their fair share of household costs and that anyone that does not have a debt problem is not unfairly penalised. It should be noted that in some circumstances creditors may demand that more than the earned percentage of household disposable income is contributed. This is likely where the creditors perceive that one person has benefited personally from the use of the credit by the other person who is now considering an IVA. This could be the case for example where a husband borrows money to pay for home developments on a property that is owned jointly by the couple. Should he decide to proceed with an IVA that includes that loan it is understandable that creditors may seek some uplift in the monthly IVA payment.

Where can I find the IVA expenditure guidelines?

Those that produce the IVA expenditure guidelines expect that those who receive them do not publish or otherwise share them with the public. They believe that the guidelines may be misused by debtors to maximise their stated expenditure and therefore minimise their monthly IVA payment. Another potential area of misuse is a member of the public manipulating their costs to qualify for an IVA when in fact another solution would be more appropriate for their real circumstances.

Any good IVA company or IVA adviser will be able to assist you in drawing up a budget that you can manage during the IVA and that your creditors will consider acceptable. When they draw up this record with you it will also enable them to provide you with a comparison with other debt solutions for which you also qualify.

We recommend that you only seek advice on IVA expenditure guidelines from a professionally qualified IVA adviser rather than relying on expenditure guidelines that are posted elsewhere on the internet. Much of this information is factually inaccurate or out of date.

For further information on IVA expenditure guidelines or to check any point regarding IVA expenditure guidelines contact our team of experts by telephone or via one of the contact forms available on this website. One of our friendly professionally qualified advisers will get back to you.

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