Considering an IVA - Please can someone answer these simple questions!

Mercyknight_2

I am a teacher and considering an IVA but I have a few questions.

1. Every year as a teacher we move up the pay scale and our pay increases. If I was to take on an IVA would my IVA payment increase in line with my salary increase (Roughly £100 increase)?

2. If they did want to increase the monthly payment couldn't I suggest that the cost of living has gone up and therefore the increase would be swallowed up anyway?

3. If I found after going on the IVA that I had a surplus of money over a few months, would I be able to directly transfer this to an account in the IVA, to speed up the repayment process?

4. Will I have to change bank accounts? I have an overdraft on my main account that I do not use. But it's nice to know that it's there as contingency!

5. What happens if I send my bank accounts for last 3 months and I've managed to save may £900 ready for when I go into an IVA will I be forced to give that money over?

Thanks,

judojub

Hi Mercyknight.
I will try to answer these as best I can but I am sure somebody else will come along with lots more knowledge than me so keep checking in!

In an IVA you are given 'allowances' for all of your spending. If you were to receive a payrise and this could be offset against the rise in the cost of living and your IP was happy with it then there would be no increase in your monthly payment. Bear in mind though that there are guidelines that IPs do follow with regards to expenditure so if you claim something has gone up then be prepared to provide proof. For instance, if you say petrol costs have gone up by £15 per week then they might want to see a months worth of receipts as proof of this.

Whatever money you are able to save from your allowances is yours to do with as you please. I personally would keep any savings for a contingency fund as, in an IVA you are not allowed to take any form of credit without express permission from the IP.

If you have debt with whoever you bank with then yes, you will have to change bank accounts. They would close your account once the IVA is set up and any of your money that is in there, they could take to offset against the money you owe them. You are not allowed to have an overdraft whilst in an IVA.

As for the last question, I am not altogether sure whether they would take this or not. It is quite a chunk of saving there so it might well be at risk.

FoggyBrain_2

Hi. For ease of reference I have copied and pasted your questions below:

1. Every year as a teacher we move up the pay scale and our pay increases. If I was to take on an IVA would my IVA payment increase in line with my salary increase (Roughly £100 increase)? Any future pay increases are dealt with by adding 50% to your IVA monthly payment and you retaining 50%. This, of course is also adjusted at the annual review to allow for increases in allowances ( expenses) and often one will offset the other resulting in no increase.

2. If they did want to increase the monthly payment couldn't I suggest that the cost of living has gone up and therefore the increase would be swallowed up anyway? It often happens this way

3. If I found after going on the IVA that I had a surplus of money over a few months, would I be able to directly transfer this to an account in the IVA, to speed up the repayment process? Any surplus you have managed to save is yours to do with as you will. However, it would be prudent to keep this in a savings account for contingencies. Paying more into the IVA will not accelerate paying off the amount due .. but add to the amount the creditors get. So ... 60 payments of £100 gets the creditors £6000. If you save up £500 and pay it in you still make the 60 x £1000, therefore the creditors get £6500.

4. Will I have to change bank accounts? I have an overdraft on my main account that I do not use. But it's nice to know that it's there as contingency! You will not be able to have an overdraft or overdraft facility, your contingency fund will be made up of savings you can make from allowances and the 50% shares in pay rises. If your bank is connected to any of your creditors you will have to change banks to prevent them offsetting funds to service the debt. HSBC and First Direct will close your account in any case as soon as they realise you are in an IVA. Co-Op Cashminder is a good IVA friendly account.

5. What happens if I send my bank accounts for last 3 months and I've managed to save may £900 ready for when I go into an IVA will I be forced to give that money over? I assume the £900 is amassed from non payment of debts while setting up the IVA ... if you can save that amount while still paying the debts you are not insolvent. I saved £500 this way and kept it in a tin ;-)

Mercyknight_2

Questions in quotes and outside of quotes...sorry

FoggyBrain wrote: »

Hi. For ease of reference I have copied and pasted your questions below:

1. Every year as a teacher we move up the pay scale and our pay increases. If I was to take on an IVA would my IVA payment increase in line with my salary increase (Roughly £100 increase)? Any future pay increases are dealt with by adding 50% to your IVA monthly payment and you retaining 50%. This, of course is also adjusted at the annual review to allow for increases in allowances ( expenses) and often one will offset the other resulting in no increase.

Ok but in my 3rd year of the IVA I will get a huge increase from £31552 to £34181 which is an increase of £2629 (that's not including the unfreezing of teaching salaries) are you telling me that the IP would allow me to keep half of that increase?


... if you can save that amount while still paying the debts you are not insolvent. I saved £500 this way and kept it in a tin ;-)

Sorry I didn't quite understand this last part, any chance of explaining it to me? I was planning on making small token payments whilst IVA went through and keeping the money saved as a contingency

Also as a side note, what happens if I have cash in my account at the time of applying for the IVA? Will they say "Give us that £600 straight away?"... It's £600 I've saved for cars problems etc, should I transfer this into a savings account or will they ask if I have money in savings?! - Grrr so confused...

Also if I end up paying

£300 x 12 = £3600
£350 x 12 = £4200
£400 x 12 = £4800
£450 x 12 = £5400
£500 x 12 = £6000

That totals: £24,000

My total debt is: £29,000

Will they still ask me to release equity in my property? I'm almost paying what I owe anyway?

FoggyBrain_2

Might I suggest you pop over to https://www.iva.com and speak to a couple of the firms recommended there for case specific advice. It's free and impartial and will give you a better grounding in what's what.

As regards the amounts paid back, it is all dependant on your disposable income .. this, as mehandblah says, is all variable. Generally speaking, if you have enough disposable income to repay the total debt in 5 years, you might be better off looking at a Debt Management Plan --- but it's best for an expert to examine all avenues with you on the phone.

On savings, for my part, once I had decided on the IVA route I stopped payments altogether to save up my contingency fund. Your nominee (IP) should be happy for you to retain this as a contingency on the grounds that it will halp the smooth running of the IVA if you have a small fallback fund in cases of emergency.

On the equity front, it is normal for equity to be released in the last year of the IVA (if there is any). However, at the moment it is impossible for those in IVA to release funds so they are required to make a further 12 months payments in lieu (which normally works out cheaper in the long run).

You will be given all the relevant figures before having to make any commitment.

Mercyknight_2

FoggyBrain wrote: »

Might I suggest you pop over to www.iva.com and speak to a couple of the firms recommended there for case specific advice. It's free and impartial and will give you a better grounding in what's what.

Thanks, I will do

FoggyBrain wrote: »

As regards the amounts paid back, it is all dependant on your disposable income .. this, as mehandblah says, is all variable. Generally speaking, if you have enough disposable income to repay the total debt in 5 years, you might be better off looking at a Debt Management Plan --- but it's best for an expert to examine all avenues with you on the phone.

I am already on a DMP with CCCS, the only thing is it will take 12 years to pay the debt of, £6,000 of the debt is overdraft which Lloyds haven't agreed to freeze the interest...

FoggyBrain wrote: »

On the equity front, it is normal for equity to be released in the last year of the IVA (if there is any). However, at the moment it is impossible for those in IVA to release funds so they are required to make a further 12 months payments in lieu (which normally works out cheaper in the long run).

You will be given all the relevant figures before having to make any commitment.

Thanks again for your help...but I have another question!?

I've worked out that in my last year of my IVA I could potentially have £20,000+ equity in my property, will they make me remortgage and give the whole equity amount or will an amount be decided before entering into the IVA?

FoggyBrain_2

You will find it impossible to remortgage, so it will be likely that you will get the extra 12 month to pay. Older IVA's used to specify a certain sum to be paid (which created problems when the equity didn't materialise). Modern ones follow a protocol which covers equity. However, all IVA's are individual and terms are open for negotiation and discussion with your IP, bearing in mind that they have to be agreed to by the creditors.

Nargleblast

Mercyknight, I am in an IVA and have just completed year 2. This is how mine works - when I get paid at the end of the month, I subtract the agreed monthly earnings amount from the actual amount paid into my bank account. The amount of surplus received, I send a cheque for half that amount to the IVA company with a covering letter and a photocopy of my payslip. The other half of the surplus I get to keep.

My IVA started in May 2009 and I received a letter in March of that year asking for copies of the past 3 months bank statements plus P60 plus a completed budget forecast for household and personal expenditure for the next twelve months. I sent all the info off and it took a few weeks to sort out but my monthly DD was eventually adjusted and I received a new budget sheet for the next twelve months. The same has just happened this year. When you fill out the annual budget sheet you need to take into account increased costs of living - eg petrol this past 12 months has gone up 20 - 25% so my request for the petrol budget was increased accordingly. So your contributions may have to increase due to your payrise, but your bills will certainly have gone up too - you need to account for them to balance things out.

Once you get to year 4 (part way through it) the IVA company will write to you asking you to obtain quotes with a view to remortgaging in order to release some equity to finish off the IVA. Now none of us know what the housing market will be like in 5 years time - so who knows what your house value will be, what equity you will have, or even if any firm would be prepared to give you a loan? Whatever your equity turns out to be, mortgage firms will only offer up to about 80-85% of your house value. So, if the house was worth say £150,000, you would only be able to borrow about £127,500 maximum. Take off your existing mortgage and your equity is not as much as you thought it was. The IVA firm would take into account the costs of arranging that loan and realising the equity, and may decide it is not worth your while to do so. Or maybe no mortgage firm will lend to you. Or if they do so, the increase in your monthly mortgage payments would be so steep that the IVA firm would not permit that to happen as it would not be in your best interests.

So, what then? You would then discuss alternative ways of completing the IVA. Gift of cash from a family member? Or maybe an extra twelve months payments instead? The latter would probably be the better option for you in many cases.

Whatever happens, your IVA firm are duty bound to help you to pay as much of your debt as possible to your creditors within a reasonable time frame, but not at the expense of a reasonable and manageable standard of living for you and your family.

Hope this helps.

Mercyknight_2

Nargleblast wrote: »

Once you get to year 4 (part way through it) the IVA company will write to you asking you to obtain quotes with a view to remortgaging in order to release some equity to finish off the IVA. Now none of us know what the housing market will be like in 5 years time - so who knows what your house value will be, what equity you will have, or even if any firm would be prepared to give you a loan? Whatever your equity turns out to be, mortgage firms will only offer up to about 80-85% of your house value. So, if the house was worth say £150,000, you would only be able to borrow about £127,500 maximum. Take off your existing mortgage and your equity is not as much as you thought it was. The IVA firm would take into account the costs of arranging that loan and realising the equity, and may decide it is not worth your while to do so. Or maybe no mortgage firm will lend to you. Or if they do so, the increase in your monthly mortgage payments would be so steep that the IVA firm would not permit that to happen as it would not be in your best interests.

So, what then? You would then discuss alternative ways of completing the IVA. Gift of cash from a family member? Or maybe an extra twelve months payments instead? The latter would probably be the better option for you in many cases.

Whatever happens, your IVA firm are duty bound to help you to pay as much of your debt as possible to your creditors within a reasonable time frame, but not at the expense of a reasonable and manageable standard of living for you and your family.

Hope this helps.

Thanks for your help, but just on that last answer I'm still struggling to understand...

If I go on to an IVA and my creditors agree to say £300 over 5 years, will they still write to me, and look at the possibility of re mortgaging and if I can't they extend my IVA to 6 years?

Also, is any money I accumulate over the 5 years mine to keep? Even if it hits a £2000. If I save £40 a month on deals on food etc over 5 years, that's £2000. Will my IP make me give over that money?

judojub

If you manage to pay back the full amount of your debt plus fees within the 5 years then your IVA will conclude and of course there will be no need for an equity release.
This clause is common in most IVAs these days.
As Nargleblast has said, you will be asked to gain a valuation for your property in the final year. If there is no equity to realise then your IVA should conclude at 5 years. If there is equity but a remortgage not possible (most likely) then the norm would be to extend the IVA for a further 12 months.
Again though, as an IVA is individual these are all things that you would need to discuss with whichever company you decide to go for.

judojub

Once your allowances are agreed, any money you manage to save from those is yours to do with as you please. A good IP would encourage saving as there is always bound to be something that goes wrong during the 5 years. Car, washing machine, horrible stuff like that!