Most IVAs last for 60 months and entail making monthly payments over that time. While the IVA proposal sets out the Debtor’s offer of repayment to Creditors, it is only to be expected that Creditors will seek to increase the monthly payments if possible and realistic.
The usual way they do this is to apply modifications to the Debtor’s proposal and, assuming the Debtor accepts these modifications, then the IVA has to be supervised in accordance with the requirements of these modifications.A standard modification applied by Creditors 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 is contributed to the arrangement. Here is how one standard modification reads:
‘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.’
What does this mean?
Well let’s assume that the Debtor’s take-home pay was to increase by £300 per month and costs of living increased by £100 per month then the net surplus would be £200 per month and Creditors would require monthly contributions to the IVA to be increased by £100 per month. The Debtor would enjoy an improvement in standard of living to the extent of £100 per month.
How does this work in practice?
About four to six weeks prior to the scheduled annual review, the Supervisor will issue 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 the Debtor to enter the new income figures and the new expenditure figures. The Debtor will be required to complete the form and return it with a copy of the Debtor’s most recent P60 and/or copies of recent pay-slips – up to twelve months of these. The Supervisor will review the I&E, calculate any increase in monthly contributions and agree these with the Debtor. The annual review is then circulated to Creditors showing the changes.
What about any overtime, bonus or commission earned by the Debtor during the course of the year prior to the annual review?
Here is how one standard modification reads:
The Debtor shall report any overtime, bonus, commission or similar to the Supervisor if not included in the original surplus calculation and where the sum exceeds 10% of the Debtor’s normal take-home pay. Disclosure to the Supervisor will be made within 14 days of receipt and 50% of the amount (over and above the 10%) shall then be paid to the Supervisor within 14 days of the disclosure. Failure to disclose any exceptional overtime, bonus, commission or similar by the Debtor will be considered a breach of the arrangement and the Supervisor shall notify the Creditors in the next annual report with proposals for how the breach is to be rectified.
For example, if the Debtor’s normal take-home pay was £1,600 per month and a once-off bonus of say £400 net was earned then that month’s take-home pay would have increased by 25%. The first £160 (10%) would not be touched and 50% of the balance of the bonus would have to be contributed. So the Debtor would have to contribute a total of £120 extra to the IVA for that month and would be allowed to keep the remainder of the bonus amounting to £280. This would seem to be fair to the Debtor.