It seems like a contradiction in terms to use the word ‘savings’ in the context of an IVA. However, not only is it possible to save in an IVA it is often essential! The truth is that most IVAs are based on monthly contributions for a term of five years, more or less.
The amount of the monthly contribution is worked out by calculating how much the debtor has left over from his or her income when allowance is made for all (reasonable) living expenses including mortgage or rent and car HP but excluding payments to unsecured creditors. The ‘left over’ amount is usually called disposable income or DI.
In the real world however, household expenditure can vary considerably from month to month. Certain items such as car insurance, house insurance, school fees and so on are often payable once a year or once a quarter and not monthly. The debtor in the IVA has to put money aside each month so when the intermittent items of expenditure become payable there is a ‘pot’ of money ‘saved’ to make the payments. On an ongoing basis the debtor has to save money and it makes sense to save it in an interest bearing account with the knowledge of the supervisor.
In approving the IVA, creditors will have agreed the reasonable expenses listed in the debtor’s income and expenditure statement which formed an essential part of the IVA proposal. Apart from all reasonable living expenses, creditors will also normally agree to allow the debtor to set aside a small amount each month which will then be available to deal with emergencies and contingencies – which arise in the real world. Again, these monies are savings – of a sort – at least until an emergency occurs, when they will be available for that rainy day!
Finally, some debtors manage to adjust their lifestyles when in IVAs by being just a little bit more frugal and keeping the household expenditure really tight. Although the living expenses allowed in the IVA are already usually really tight, some debtors can just about manage to put a few pounds aside each month from their ‘frugality’ and good management of the household budget. Again, these monies can be regarded as savings.
All such savings can be regarded as a sort of insurance policy so that if some temporary negative event occurs which threatens the successful completion of the IVA, these savings allow the debtor something of a respite and buy at least a bit of time during which a variation of the IVA can be proposed to creditors in the light of the debtor’s changed circumstances.