Are there spending restrictions with an IVA?
If you enter an individual voluntary arrangement (IVA), you’ll have to restrict your spending. But that doesn’t mean you have to live like a monk.
In this guide, we explain:
- what IVA spending restrictions are
- what they’ll mean for your lifestyle
- how to make them work for you
What's in this guide?What are IVA spending restrictions?What does an IVA budget include?Things to include in your IVA budgetWhat is the IVA additional income threshold?How to cope on an IVA budget
What are IVA spending restrictions?
When you enter an IVA, you agree to follow a strict set of spending rules. This means no luxury or unnecessary purchases and limited access to credit.
The aim of the rules is to make sure your IVA payments are made on time and your debt is cleared within the agreed timeframe.
While your IVA is in place, you’ll be expected to live within a strict budget.
What does an IVA budget include?
Before submitting your IVA proposal, an insolvency expert will go through all your living expenses with you. This will form the basis of your IVA budget. You will need to live on this budget for the duration of your IVA.
As well as leaving you money for basics like rent, food and clothing, you’ll also be allowed to set aside a modest amount of money for things like socialising. All these things are treated as essential household costs.
Your IVA budget will cover every area of household spending, including:
- rent/mortgage payments
- gas, electricity and water bills
- council tax
- mobile phones
Things to include in your IVA budget
When you’re putting together your IVA budget, it’s important to include all your living expenses. Your monthly IVA payments will be decided based on the information you provide. This means being as accurate as possible is vital.
If you miss an essential living cost, you may struggle to keep up with your IVA payments. It’s particularly easy to overlook annual expenses e.g. MOT costs.
The insolvency expert helping you with your budget will do their best to make sure you don’t miss anything. But they’re relying on the information you provide, so make sure you’ve given careful thought to everything you spend in a full year.
Once your IVA is approved, you can manage your agreed budget however you see fit. As long as you cover your IVA payments and essential bills, how you spend any money left over is up to you.
You may also be able to increase the amount of money at your disposal by using the additional income threshold to your advantage.
What is the IVA additional income threshold?
Once your IVA has been approved, the company managing it for you will let you know your additional income threshold. This is the amount of income you can earn without having to put it towards your IVA.
The figure is usually 10% of the income listed in your IVA proposal. But it can vary.
You could earn this extra income by working overtime or through commissions or bonuses. How you spend this money is up to you. You may decide to set it aside to pay for an inexpensive getaway. Or you may find it comforting to have a safety net and choose to put it in a savings account.
How to cope on an IVA budget
You can enjoy a decent lifestyle while living on an IVA budget. The best way to succeed is to be disciplined and make sure you stay within the agreed spending limits.
If you’re struggling to manage, speak to the person managing your IVA. They’ll want to make sure your IVA doesn’t fail and will be able to offer advice based on your individual situation.
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