IVAs: How Much Is The Monthly Repayment Going To Be?

An IVA, (Individual Voluntary Arrangement) is a formal agreement that allows a person in financial difficulties avoid petitioning for bankruptcy. New monthly repayments are arranged, based on affordability to the debtor, and these repayments are paid for an agreed period, normally 5 years. When the repayments have been completed, any outstanding debt is written off, and the debtor is debt free.

As a debt consultant that specializes in IVAs, one of the most common questions that I am asked by my clients is "How much will my repayment be?"

So here is a brief description of how the IVA repayments are calculated, but before I start certain points must be explained.

• The IVA repayments need to reflect an 'honest' affordable figure.
• The creditors will need proof that the debtor can afford the repayments and no more.
• The success or failure of an IVA will be depend heavily on the debtor adopting a realistic financial approach.
• The details of the debtor's financial position are lodged in court. This makes the IVA a legal process.

The first part of the calculation is establish the debtors income. This needs to be the debtors net income, i.e. the income that the debtor receives after their taxes have been deducted. Any other incomes that the debtor may receive also need to be calculated, e.g. any overtime, bonuses or commissions that do not form part of the net income, a part time job or any state benefits that may supplement the debtors income.

Once this figure has been calculated the next step is to analyse the debtor's expenditure. All general living expenses need to be accounted for. Examples of things to include are rent and housing associated costs, food and clothing, travelling expenses, and an element of expenditure for sundries. What ought to be excluded at this point are the current debt repayments. They will cease to be paid and should not be calculated. Every debtor has their own unique circumstances and therefore one person's expenditure will vary from another, so it is essential that all relevant expenses are noted.

It is important to realise that luxury items, nonessentials and excessively high expenses will be challenged by the creditors, when they are given their opportunity to vote. Hence the debtor needs to be honest with themselves in regards to what will be deemed acceptable to creditors as part of a reasonable daily budget.

Once both sides of the equation are assembled, i.e. the income and expenditure, the figure is established.

The monthly repayment into an IVA will be equal to what remains after the expenditure is deducted from the income. This figure is known as the disposable income.

It must be stressed that there are established guidelines, set by the creditors, that determine what level of repayment will be deemed too low for an IVA to be considered. This level is determined by the value of the debts that the debtor has, but it is generally considered to be 25% of the debt, plus costs, as a minimum. N.B. Recently some creditors have modified these minimum repayment levels to 40% plus costs.

Now that the repayment has been calculated, and assuming that the amount is higher than the minimum level for the size of debt, the insolvency practice that is acting on behalf of the debtor will require proof that the submitted figures are accurate.

Once the figures have been verified, and the insolvency practitioner has made any required adjustments, the figure ought to stand up to the scrutiny of the creditors.

However, if the creditors do insist on making modifications to the repayment amount before they will accept the IVA, the debtor will be informed of the creditor's modifications, and can withdraw from the IVA process if they cannot agree to the creditor's changes.

Iain Wrenshall is a senior debt adviser for myIVA-Adviser.com and specializes in Individual Voluntary Arrangements.

Taking the first step of asking for help with a debt problem is never easy. However, do not feel you are on your own. I invite you to call 0800 088 7503. Your call will be free and will be treated in the strictest confidence by our small, specialist team of advisers. Each of whom has been trained to the highest standard in finding ethical solutions for all aspects of personal debt related problems, particularly Individual Voluntary Arrangements and, what's more, none of them are driven by sales targets.

However, if you are not ready to discuss your circumstances just yet, but would like further information about IVAs, click here and download any of our 6 free guides. They are packed with great tips and solid advice on all the aspects of IVAs you need to know.

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