A good proposal for an Individual Voluntary Arrangement or IVA will have at its heart a sensible, realistic and well constructed Income and Expenditure Statement or I&E.
The statement of income will be transparent, complete, accurate and truthful. The statement of expenditure will reflect the reality of the living expenses incurred by the debtor and his or her dependents and will be within the normal range of reasonable living expenses for a family of that size and age profile for the area in which they live. A concern for anyone who is contemplating entering into an IVA is whether their creditors will look for the last penny of disposable income to be contributed, leaving nothing for sundries or emergencies.
In truth, a good I&E should include a reasonable amount set aside for sundries or emergencies. If the insolvent debtor is single with no family commitments then the amount will be smaller than where there is a spouse or partner and/or dependent children. In the latter case, what we have is a statement of family income and family expenditure. How much is a reasonable amount? One yardstick used is that the family I&E should allow a single debtor to retain for sundries and emergencies a maximum amount per month of about £12, a couple £23, each extra dependent adult £12 and each child £11. Creditors may sometimes decide that in all the circumstances of the case, such allowances 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 statement. When the IVA is accepted by 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 of any non-dependent children to the household budget. Income should be net of all taxes and national insurance deductions and any mandatory contributions to pension schemes.
Spending should include all reasonable living expenses. 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 & servicing), medical optical & dental costs, clothing & footwear, costs incurred by children (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 insurance & upkeep. If you smoke, then unless you are sure you are giving up the habit, this expenditure must be listed. Modest contributions to church or charity should be included if applicable. Any special unavoidable expenses (e.g. special diet for a family member) should be included. Last but not least, an appropriate amount should be included for sundries & emergencies, as already highlighted above.
There are guidelines available from creditors which detail and limit the amounts allowable under each heading. Your insolvency practitioner will advise you in regard to these limits. Should you genuinely exceed any particular limit, then your IVA proposal must provide a reasonable explanation for the excess with appropriate back up evidence if necessary. Creditors will normally accept such expenditures when explained truthfully and rationally.