Most Individual Voluntary Arrangements last for 60 months (5 years) as standard, and in this time the debtor will make fixed payments each month. The IVA proposal sets out what the debtor’s offer of repayment to creditors is. If the debtors disposable income increases during the term of the IVA the creditors will expect to see the debtors monthly payments to them also increase.
One of the standard things the creditors specify in the IVA agreement is that a supervisor for the IVA carrys out an annual review of the debtor’s income and expenditure to ensure that a fair portion of any extra disposable income is contributed to the arrangement. Here is how one standard modification reads:
‘Where net income has increased which can include any routine overtime, the debtor will increase contributions by 50% of the net surplus 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. Creditors would require monthly contributions to the IVA to be increased by 100 per month and the debtor would be able to enjoy an improvement in the household 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 request 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. The supervisor then reviews the debtor’s I&E form, calculates the required increase in monthly contributions and agrees this with the debtor. The annual review is then circulated to creditors showing the changes.
So what happens if the debtor does overtime, receives a bonus or commission or receives any extra income during the course of the year prior to the annual review? Here is how one standard modification reads:
‘The debtor will need to report any overtime worked, bonuses earned, commission earned or similar to their IVA supervisor if it is not included in the original calculation and where the sum exceeds 10% of the debtor’s take-home pay. Disclosure must be made within 14 days of receipt and 50% of the amount shall then be paid to the supervisor within 14 days of this disclosure. Any failure to disclose any overtime, bonus, commission or similar earned by the debtor will be considered a breach of the IVA and the supervisor will have to notify the creditors with proposals for how the breach is to be sorted out.
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.