An Individual Voluntary Arrangement (IVA) is a formal debt solution in the UK that allows individuals to pay back a percentage of their debts over a fixed period, usually five to six years. It’s designed to help those who can’t repay their full debts but can afford to make some repayments. One of the main concerns for people considering an IVA is how much money they will be left with to cover their essential living costs.
How much will an IVA leave me with?
The precise amount you’re left with while on an IVA is dependent on your individual circumstances, and it’s essential to understand that there isn’t a fixed sum that everyone is left with. Instead, there are guidelines and allowances set for various categories of spending, such as utilities, groceries, transport, and clothing. These are based on industry-standard figures and can be adjusted based on individual needs.
Firstly, a detailed review of your finances will be carried out by an Insolvency Practitioner (IP). This involves tallying all your income sources and subtracting your essential living costs to determine your disposable income. This disposable income is the amount you’ll be expected to contribute to your creditors through the IVA.
Essential expenses usually cover:
- Mortgage or rent payments.
- Council tax and essential utilities like water, gas, and electricity.
- Basic food and housekeeping costs.
- Necessary clothing.
- Transport costs, including public transport or car-related costs if necessary for work.
- Basic communication, like phone bills.
- Childcare or essential medical costs.
It’s important to note that luxury or non-essential expenses, like holidays, entertainment, or gym memberships, are not typically included in these allowances. However, if there are special circumstances or exceptional expenses in your life, your IP might consider them when working out your disposable income.
Disposable income:
After all the essential costs are deducted, the remaining amount is your disposable income, which will be allocated towards the IVA payments. However, the goal of an IVA is not to leave you destitute. It aims to strike a balance where you can live reasonably while repaying your debts. If your situation changes during the IVA (for example, your income reduces or your essential costs rise), it’s possible to review the terms of the agreement.
In conclusion, an IVA does not leave you with a fixed amount but rather ensures you can cover essential living costs while contributing towards your debts. If you’re considering an IVA, it’s crucial to get advice from a licensed professional who can guide you based on your unique situation.
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