Considering an IVA

A question about : Considering an IVA

I am a teacher and considering an IVA but I have a few questions.

1. Every year as a teacher we move up the pay scale and our pay increases. If I was to take on an IVA would my IVA payment increase in line with my salary increase (Roughly Ј100 increase)?

2. If they did want to increase the monthly payment couldn't I suggest that the cost of living has gone up and therefore the increase would be swallowed up anyway?

3. If I found after going on the IVA that I had a surplus of money over a few months, would I be able to directly transfer this to an account in the IVA, to speed up the repayment process?

4. Will I have to change bank accounts? I have an overdraft on my main account that I do not use. But it's nice to know that it's there as contingency!

5. What happens if I send my bank accounts for last 3 months and I've managed to save may Ј900 ready for when I go into an IVA will I be forced to give that money over?

Thanks,

Best answers:

• Hi Mercyknight.
  I will try to answer these as best I can but I am sure somebody else will come along with lots more knowledge than me so keep checking in!
  In an IVA you are given 'allowances' for all of your spending. If you were to receive a payrise and this could be offset against the rise in the cost of living and your IP was happy with it then there would be no increase in your monthly payment. Bear in mind though that there are guidelines that IPs do follow with regards to expenditure so if you claim something has gone up then be prepared to provide proof. For instance, if you say petrol costs have gone up by Ј15 per week then they might want to see a months worth of receipts as proof of this.
  Whatever money you are able to save from your allowances is yours to do with as you please. I personally would keep any savings for a contingency fund as, in an IVA you are not allowed to take any form of credit without express permission from the IP.
  If you have debt with whoever you bank with then yes, you will have to change bank accounts. They would close your account once the IVA is set up and any of your money that is in there, they could take to offset against the money you owe them. You are not allowed to have an overdraft whilst in an IVA.
  As for the last question, I am not altogether sure whether they would take this or not. It is quite a chunk of saving there so it might well be at risk.
• Hi. For ease of reference I have copied and pasted your questions below:
  1. Every year as a teacher we move up the pay scale and our pay increases. If I was to take on an IVA would my IVA payment increase in line with my salary increase (Roughly Ј100 increase)? Any future pay increases are dealt with by adding 50% to your IVA monthly payment and you retaining 50%. This, of course is also adjusted at the annual review to allow for increases in allowances ( expenses) and often one will offset the other resulting in no increase.
  2. If they did want to increase the monthly payment couldn't I suggest that the cost of living has gone up and therefore the increase would be swallowed up anyway? It often happens this way
  3. If I found after going on the IVA that I had a surplus of money over a few months, would I be able to directly transfer this to an account in the IVA, to speed up the repayment process? Any surplus you have managed to save is yours to do with as you will. However, it would be prudent to keep this in a savings account for contingencies. Paying more into the IVA will not accelerate paying off the amount due .. but add to the amount the creditors get. So ... 60 payments of Ј100 gets the creditors Ј6000. If you save up Ј500 and pay it in you still make the 60 x Ј1000, therefore the creditors get Ј6500.
  4. Will I have to change bank accounts? I have an overdraft on my main account that I do not use. But it's nice to know that it's there as contingency! You will not be able to have an overdraft or overdraft facility, your contingency fund will be made up of savings you can make from allowances and the 50% shares in pay rises. If your bank is connected to any of your creditors you will have to change banks to prevent them offsetting funds to service the debt. HSBC and First Direct will close your account in any case as soon as they realise you are in an IVA. Co-Op Cashminder is a good IVA friendly account.
  5. What happens if I send my bank accounts for last 3 months and I've managed to save may Ј900 ready for when I go into an IVA will I be forced to give that money over? I assume the Ј900 is amassed from non payment of debts while setting up the IVA ... if you can save that amount while still paying the debts you are not insolvent. I saved Ј500 this way and kept it in a tin ;-)
• Questions in quotes and outside of quotes...sorry
  Quote:
• Might I suggest you pop over to www.iva.com and speak to a couple of the firms recommended there for case specific advice. It's free and impartial and will give you a better grounding in what's what.
  As regards the amounts paid back, it is all dependant on your disposable income .. this, as mehandblah says, is all variable. Generally speaking, if you have enough disposable income to repay the total debt in 5 years, you might be better off looking at a Debt Management Plan --- but it's best for an expert to examine all avenues with you on the phone.
  On savings, for my part, once I had decided on the IVA route I stopped payments altogether to save up my contingency fund. Your nominee (IP) should be happy for you to retain this as a contingency on the grounds that it will halp the smooth running of the IVA if you have a small fallback fund in cases of emergency.
  On the equity front, it is normal for equity to be released in the last year of the IVA (if there is any). However, at the moment it is impossible for those in IVA to release funds so they are required to make a further 12 months payments in lieu (which normally works out cheaper in the long run).
  You will be given all the relevant figures before having to make any commitment.
• You will find it impossible to remortgage, so it will be likely that you will get the extra 12 month to pay. Older IVA's used to specify a certain sum to be paid (which created problems when the equity didn't materialise). Modern ones follow a protocol which covers equity. However, all IVA's are individual and terms are open for negotiation and discussion with your IP, bearing in mind that they have to be agreed to by the creditors.
• Mercyknight, I am in an IVA and have just completed year 2. This is how mine works - when I get paid at the end of the month, I subtract the agreed monthly earnings amount from the actual amount paid into my bank account. The amount of surplus received, I send a cheque for half that amount to the IVA company with a covering letter and a photocopy of my payslip. The other half of the surplus I get to keep.
  My IVA started in May 2009 and I received a letter in March of that year asking for copies of the past 3 months bank statements plus P60 plus a completed budget forecast for household and personal expenditure for the next twelve months. I sent all the info off and it took a few weeks to sort out but my monthly DD was eventually adjusted and I received a new budget sheet for the next twelve months. The same has just happened this year. When you fill out the annual budget sheet you need to take into account increased costs of living - eg petrol this past 12 months has gone up 20 - 25% so my request for the petrol budget was increased accordingly. So your contributions may have to increase due to your payrise, but your bills will certainly have gone up too - you need to account for them to balance things out.
  Once you get to year 4 (part way through it) the IVA company will write to you asking you to obtain quotes with a view to remortgaging in order to release some equity to finish off the IVA. Now none of us know what the housing market will be like in 5 years time - so who knows what your house value will be, what equity you will have, or even if any firm would be prepared to give you a loan? Whatever your equity turns out to be, mortgage firms will only offer up to about 80-85% of your house value. So, if the house was worth say Ј150,000, you would only be able to borrow about Ј127,500 maximum. Take off your existing mortgage and your equity is not as much as you thought it was. The IVA firm would take into account the costs of arranging that loan and realising the equity, and may decide it is not worth your while to do so. Or maybe no mortgage firm will lend to you. Or if they do so, the increase in your monthly mortgage payments would be so steep that the IVA firm would not permit that to happen as it would not be in your best interests.
  So, what then? You would then discuss alternative ways of completing the IVA. Gift of cash from a family member? Or maybe an extra twelve months payments instead? The latter would probably be the better option for you in many cases.
  Whatever happens, your IVA firm are duty bound to help you to pay as much of your debt as possible to your creditors within a reasonable time frame, but not at the expense of a reasonable and manageable standard of living for you and your family.
  Hope this helps.
• If you manage to pay back the full amount of your debt plus fees within the 5 years then your IVA will conclude and of course there will be no need for an equity release.
  This clause is common in most IVAs these days.
  As Nargleblast has said, you will be asked to gain a valuation for your property in the final year. If there is no equity to realise then your IVA should conclude at 5 years. If there is equity but a remortgage not possible (most likely) then the norm would be to extend the IVA for a further 12 months.
  Again though, as an IVA is individual these are all things that you would need to discuss with whichever company you decide to go for.
• Once your allowances are agreed, any money you manage to save from those is yours to do with as you please. A good IP would encourage saving as there is always bound to be something that goes wrong during the 5 years. Car, washing machine, horrible stuff like that!
• Hi Mercyknight.
  Yes, to clarify, you will always owe the full amount of your debt (through creditors) throughout the term of your IVA. If you can pay that back plus fees then the IVA will conclude. Other than that you will continue with the IVA for the 5/6 years and what is left will essentially be 'written off' and you will be debt free.
• Ok, but my house was purchased through MHO Mychoice Homebuy so I know for a fact they would not allow a remortgaging on my property. Can't this be written into the IVA contract so I know that I'll only pay 5 years full stop with option to remortgage.
• You can discuss the mortgage options with your IP before he drafts the proposal. If there is equity and you are unable to remortgage (for whatever reason) you will most likely get the extra 12 months added to the term.
• I am currently on a CCCS DMP. I spoke to them yesterday and they said that it's best I stay on DMP rather than go for the IVA as it will only be 6 years to complete in September. But I added my debt up last night and my debts have stayed the same in a year because of interest and charges whilst being on a DMP, they advised me to write letters of complaints to get interest and charges cancelled.
  I'm confused now...
• You are "paying" CCCS to do the contacting of creditors and negotiating interest freezes on your behalf .... if you are going to do it yourself the creditors will get more, as CCCS are still getting their cut (for, in this case, effectively doing nothing!). Of course they want you to continue with the DMP -- they are getting paid for no effort on their part at all !
  It is impossible to predict an end date for a DMP unless there are very few creditors and they all agree to freeze interest and charges --- and don't sell on the debt or renege the agreement (which they often do).
• Yeah but CCCS don't charge a fee for DMP and the money I pay to them gets distributed to each of my 5 creditors equally (I have checked)
  My 5 creditors:
  HSBC - Agreed to freeze on Overdraft
  Halifax - Agreed to freeze interest on Credit Card
  Lloyds TSB - Agreed to reduced payments on loan
  Lloyds TSB - Not agreed to freeze interest on credit card
  Lloyds TSB - Not agreed to freeze interest and charges on Overdraft
  I am sending a letter today to get all interest and charges frozen. If it doesn't work I think it'll push my hand to go with the IVA.
  With the IVA will it be set out at the beginning the maximum amount I will pay over the 5 years? For example say I won Ј3000, would they simply take that money, and I'd still carry on paying the full term of the IVA regardless of the extra cash?
• With an IVA you are bound to pay disposable ( ie surplus) income into the "pot". If you won Ј3000 that would be classed as a windfall and, under the current protocol ( which CAN be varied in the draft, but is the usual starting point) you would keep the first Ј500 of any windfall and pay the rest in to increase the dividend to the creditors. Increased earnings, overtime and bonus payments (earned income) are dealt with by disregarding an amount equivalent to 10% of your usual monthly income, which you keep, then splitting the balance 50/50. Some, generally older, IVAs set out a MINIMUM dividend (newer ones set out an estimated dividend), but the maximum is always 100% on the total debt plus fees. Only when the IVA has concluded does tha balance not paid get written off.
• Another quick question.
  As a teacher I get a salary increase every September.
  Would it be beneficial to set up my IVA just before my salary increase therefore I would have a year before having to increase my IVA through my annual review because of my salary increase?