Most Individual Voluntary Arrangements (IVAs) last for sixty months and entail making monthly payments over that time. The IVA proposal contains the debtor’s initial offer of monthly repayments to creditors. These payments may be increased by creditors, with the debtor’s agreement before the IVA commences, that is at the Meeting of Creditors (MOC).
The usual way that creditors do this is to apply modifications to the debtor’s IVA proposal, if they think that such increases are realistic and justified and crucially if they honestly believe that the debtor can afford to make them. Such a belief is grounded in a thorough examination of the debtor’s income and expenditure statement and particular in the family living expenses being claimed by the debtor. If creditors think that any expenses is artificially inflated or exaggerated, then they are not slow to point this out.
From the debtor’s perspective then, it is crucial that any such seemingly high expenditure is thoroughly justified so as to convince creditors that it is honest and reasonable and that it reflects the reality of the debtor’s living circumstances and those of his or her family. Assuming the debtor agrees to accept such modifications, the IVA is approved by creditors and it falls to the supervisor to administer the IVA in accordance with the requirements of the modifications.
A standard modification applied by creditors at the MOC is to require the supervisor of the IVA to carry out an annual review of the debtor’s income and expenditure in order that a fair portion of any additional net disposable income which the debtor earns is contributed to the arrangement. This is a reasonable approach. If the debtor’s circumstances change for the better, then creditors expect that the payments will be increased. For example, the debtor may be promoted at work or secure a better job or obtain additional benefits or be able to reduce living expenses and by these or other means increase the disposable income of the family. One standard modification reads as follows: ‘Where net income has increased, including any routine overtime, the debtor shall increase contributions by 50% of the net surplus, after taking into account costs of living, commencing in the month after review.’
Let’s see what that means in practice. Assuming that the debtor gets a pay increase and take-home pay increases by £300 per month while costs of living increased by £100 per month, then the net increase in the debtor’ net surplus would increase by £200 per month. Creditors would require monthly payments to the IVA to be increased by £100 per month. The debtor would still enjoy an improvement in standard of living to the extent of £100 per month. It is part of the supervisor’s role to make sure that the payments are increased accordingly. About four to six weeks prior to the scheduled annual review, the supervisor issues an Income and Expenditure (I&E) form to the debtor showing the figures used in the IVA proposal or in the previous annual review if there has been one and requesting that the debtor enter the new income figures and the new expenditure figures. The debtor completes the form and returns it with a copy of the most recent P60 and copies of recent pay-slips. The supervisor reviews the figures, calculates any increase in monthly contributions and agrees these with the debtor. The annual review is then circulated to creditors showing the changes.