When you offer your creditors proposals for an IVA, they carefully consider whether your offer of payments is fair. They look at your income and your household expenditure and take into account any special family circumstances that may affect your family and that may impact on your ability to make the payments, such as a family member having a medical condition with special medication, dietary or care needs.
If your IVA is based on your making 60 monthly payments, creditors may increase the amount you have to pay each month at the initial meeting of creditors if they consider your monthly expenses to be overstated or your income understated or if any of your expenses are set at an exorbitant level in your proposal. For example, if you claim £200 per month in smoking expenses, they may cut this back to about £60 per month and seek to increase your monthly payments by £140. If you want your IVA to be accepted, you really have no choice but to agree to such this uplift in your payments which clearly requires you to cut back on your smoking.
IVA Proposal Modifications
It is common practice for creditors to apply such modifications to your proposal at the meeting of your creditors. They also usually apply a standard modification requiring your IVA supervisor to carry out an annual review of your income and expenditure in order to ensure that a fair portion of any additional net disposable income which you earn is contributed to the arrangement. This is a fair and reasonable approach. If your financial circumstances change for the better, then creditors expect that your monthly payments will be increased. For example, you may be promoted at work or secure a better job or obtain additional benefits thus increasing your household disposable income. Or you may have been able to reduce your household living expenses.
One standard modification reads as follows:
‘Where net income has increased, including any routine overtime, the debtor shall increase contributions by 50% of the net surplus, after taking into account costs of living, commencing in the month after review.’
Let’s see what that means in practice. Assuming that you get a pay increase and your regular take-home pay increases by £500 per month while at the same time your household’s cost of living increases by £150 per month, then your net surplus income would have increased by £350 per month. Creditors expect you to contribute half of this net additional amount i.e. £175 to your IVA every month. Your household would also enjoy an improvement in its standard of living to the extent of £175 per month. It is part of your supervisor’s role to make sure that the payments are increased accordingly.
IVA Annual Review
About four to six weeks prior to the scheduled annual review, your supervisor will issue an income and expenditure form to you showing the figures used in your IVA proposal or in your most recent annual review if there has been one and request that you furnish your new income figures and your new expenditure figures. You complete the form and return it with a copy of your most recent P60 and copies of your recent pay-slips. Your supervisor reviews these figures, calculates any increase in your monthly contributions and agrees these figures with you. Your annual review is then circulated to creditors showing the changes.
What about any overtime, bonus or commission that you earn during the course of the year prior to the annual review? One standard modification reads as follows:
‘The debtor shall report any overtime, bonus, commission or similar to the supervisor if not included in the original surplus calculation and where the sum exceeds 10% of the debtor’s normal take-home pay. Disclosure to the supervisor will be made within fourteen days of receipt and 50% of the amount, over and above the 10%, shall then be paid to the supervisor within 14 days of the disclosure. Failure to disclose any exceptional overtime, bonus, commission or similar by the debtor will be considered a breach of the arrangement and the supervisor shall notify the creditors in the next annual report with proposals for how the breach is to be rectified.’
An example will illustrate how that works in practice. Let’s suppose that your normal take-home pay is £2,000 per month and you receive a once-off bonus of say £500 net. Then that month’s take-home pay would have increased by 25%. The first £200 of your bonus, 10% of normal take-home pay, would not be touched and 50% of the balance of your bonus would have to be contributed to your IVA. So you would have to contribute a total of £150 extra to your IVA for that month only and would be allowed to keep the remainder of your bonus amounting to £350.
Making such increased monthly contributions to your IVA does not reduce the term of your IVA. You will still have to keep on paying for sixty months. It just means that you will be repaying a greater percentage of your debts to your creditors and they will receive a greater dividend than originally estimated when you made your initial IVA proposal.
Supervisors have a duty to ensure that payments to the IVA are made in accordance with the agreed terms and conditions as accepted at the meeting of creditors, including modifications.