Any good proposal for an Individual Voluntary Arrangement (IVA) will include a sensible, realistic and well constructed Income and Expenditure Statement (I&E). For anyone who is contemplating offering proposals to creditors for an Individual Voluntary Arrangement, it may be a concern as to whether creditors will look for the last penny of disposable income to be contributed to the IVA, with no provision for emergency expenditure or for ‘rainy day’ events. These events might include illness or injury to a member of the family or unexpected vehicle breakdown or the necessary replacement of a domestic appliance such as a heater or cooker.
In truth, a good I&E statement should include a reasonable sum set aside for such emergencies or contingencies. If the insolvent debtor is single with no family commitments then the amount will be smaller than where there is a spouse or partner or dependent children. If the debtor has dependents, the proposal’s I&E statement should actually be a summary of family income and family expenditure. How much is a reasonable amount? One yardstick used by creditors is that the family I&E should allow a single debtor to retain a contingency amount of £15 per month, a couple £30 per month and each child £12 per month. Creditors may sometimes decide that in all the circumstances of the case, such contingency amounts are too generous and may seek to reduce them somewhat. In the end however, the debtor will have control over a certain amount of the disposable income and can retain that amount each month.
The important thing however is to ensure that all sources of income and all family expenses are listed on the proposal’s I&E statement. When the IVA is approved at the meeting of creditors it is a little bit late to realize that a certain recurrent expense item has been overlooked. It is the debtor’s responsibility to ensure that this does not happen and to make sure that the insolvency practitioner who is acting as nominee includes all reasonable expenses in the I&E statement in the IVA proposal.
It is obviously essential that all sources of income are included: wages, salaries, housing benefits, child benefit, tax credits, pensions, dividends and interest earned on savings accounts, lodger rental or other income from letting property and so on. Household or family income should include the income of both partners and the contributions to the household budget of any non-dependent children who reside with the debtor. Income should be net of all taxes & national insurance deductions and any mandatory contributions to pension schemes or other agreed and mandatory deductions such as union dues, parking fees and so on.
Spending should include all reasonable living expenses. In compiling I&E statements, the debtor should start with the ‘must pay’ bills such as mortgage or rent or cost of lodgings and car HP. Next summarize all food and housekeeping expenses for the family and the cost of utilities such as water, gas and electricity.
Then list all the normal items of expenditure one by one: council tax, water rates, telephone, mobile, internet, sky, TV license, life and property insurances, vehicle costs (fuel, parking, car insurance, car tax, repairs and servicing), medical optical and dental costs, clothing and footwear, costs incurred by children (uniforms, school meals, school trips and activities, sports & hobbies, pocket money, transport), laundry & dry cleaning, hairdressing, newspapers & magazines. If you have a pet you must allow for its insurance and upkeep. If you smoke than unless you are sure you are giving up the habit this expenditure must be listed although creditors are likely to chop this type of expenditure to the minimum. Modest contributions to the debtor’s church or charity should be included if applicable. If a member of the family has a health condition either mental or physical which requires special expenditure, any relevant unavoidable expenses such as a special diet or protective clothing should be included. Last but not least, an appropriate amount should be included to cover sundries, contingencies and emergencies.