How much does an IVA leave you to live on?

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Upon commencing an Individual Voluntary Arrangement (IVA), your monthly contributions are determined by the financial details you submit concerning your earnings and expenses. This arrangement ensures manageable debt repayments alongside other fiscal obligations, ensuring payments are consistently met.

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Nonetheless, even though an IVA is structured to fit within your financial comfort zone, it’s common to feel concerned about covering essential expenses like housing, food, and utility bills.

What is an IVA?

An IVA represents a formal pact between you and your creditors (those you owe money) to settle your overwhelming debt via monthly payments.

IVAs address various unsecured debts including personal loans and arrears on council tax, rent, and utilities, excluding mortgage defaults, court fines, or student loans.

Entering an IVA halts all interest and extra charges, preventing creditors from pestering you, thus allowing you to focus on debt repayment with fewer interruptions.

Typically, an IVA spans five years (60 months), but can extend an additional year if equity can’t be released in the final year or to compensate for delayed payments. Upon conclusion, any outstanding debt is cancelled, liberating you to resume your life.

An IVA must be initiated by an Insolvency Practitioner (IP), who acts as your primary contact and liaises with your creditors throughout the process.

Impact on Credit Rating

Having an IVA will mark your credit record for six years, reducing your credit score and complicating approvals for loans, mortgages, accounts, or phone contracts.

This implies that post-IVA, the record persists on your credit file for an extra year beyond the usual five-year duration. Most opt to await the removal of the IVA from their credit history before seeking additional credit.

Given that lenders first inspect your credit history, an IVA can diminish your likelihood of approval, reflecting past difficulties in managing debt.

Calculating IVA Payments

IVA payments are affordability-centric, ensuring you never pay beyond your means. Nonetheless, they also consider your debt magnitude, financial circumstances, and creditor expectations each month.

Your IVA payment mirrors your remaining funds after deducting essential living costs from your net income, assessed via an analysis of your household income and expenses.

For instance, if you make £2,000 monthly and spend £1,750 on living costs, your IVA payment would likely be £250, ensuring both essential expenditures and debt contributions are covered.

Thus, with a £25,000 total debt, after five years, you’d have paid £15,000 (60 x £250), with the remainder £10,000 forgiven.

Minimum IVA Payment

No specific minimum is necessary for an IVA; you qualify if you can contribute a feasible sum, typically around £100 monthly, towards your debt.

However, creditors generally require a repayment of at least 25% of the initial debt over the five-year term for IVA approval.

If insufficient funds remain after your essential expenses, creditors might decline your IVA, suggesting other debt solutions like a Debt Relief Order (DRO) if you have under £75 remaining monthly.

Savings Potential with an IVA

An IVA aims to alleviate your monthly debt payments, making debts more manageable.

For example, reducing a monthly repayment from £500 to £95 with an IVA, although appearing disadvantageous to creditors, actually encourages them to consent to the arrangement, as it ensures regular repayments over receiving nothing.

During an IVA, any savings should ideally come from funds allocated for basic needs or permitted additional earnings.

IVA Budget Guidelines

Upon entering an IVA, you adhere to a spending plan based on an income and expenditure review by your IP, guiding your financial behavior throughout the IVA term.

Your IVA budget will account for all necessary expenses including:

  • Rent or mortgage payments
  • Utilities (gas, electricity, water)
  • Communication costs
  • Broadband fees
  • Clothing expenses
  • Transportation costs
  • Food expenditures

Cost of an IVA

IVA costs vary but exclude extra payments or hidden fees, with most charges deducted directly from your monthly payments.

IVA fees are categorized into nominee fees, supervisor fees, and disbursements, each specified in your IVA proposal and agreed upon with your creditors.

Additional Income Threshold

Your IP determines how much extra income you retain before contributing to the IVA, setting a threshold typically at 10% of your monthly income.

For instance, if you make an additional £125 beyond the threshold, half must be directed towards the IVA, leaving you with £62.50.

Managing IVA Payment Difficulties

IVA payments, derived from your reported income and expenses, should prevent financial hardship. Nonetheless, if payment issues arise, inform your IP immediately for potential adjustments like changing payment dates, reducing payments temporarily, pausing payments, or early settlement.

Missed payments prompt a ‘notice of breach’ from your IP, requiring an explanation and rectification plan within a month.

In financial emergencies, your IP might allow a payment hiatus, requiring evidence like bank statements or emergency expense receipts.

Reducing IVA Payments

If financial constraints hinder IVA affordability, your IP might reduce payments without creditor notification for up to 15% reduction, or seek creditor approval for larger reductions, potentially extending your IVA term while maintaining the total repayment sum.


Considering an IVA, you might ponder the financial leeway it offers. Individual factors like debt level, income, and affordability dictate this.

Entering an IVA commits any disposable income towards the arrangement, but it guarantees coverage for essential costs due to income-based payment calculations.

While an IVA facilitates debt management through reduced payments, explore various debt solutions and seek professional advice to ensure the best financial strategy for your circumstances.

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