Allowable IVA expenditure

What spending is taken into account for an Individual Voluntary Arrangement?

Always bear in mind that an IVA is intended to address your money problems on the basis of what you can reasonably afford after covering your usual household living costs. That means then that we need to take into account all those items of expenditure which are considered to be priorities – essentially those monthly costs which have to be covered in order that you maintain the roof over your head and the food on the table. It is only you have covered these costs that we can establish how much you can afford to set aside every month to pay towards your IVA.

Typically, essential/priority costs would include:
  • Property costs – rent (including any arrears), mortgage, secured loans payments (including any arrears), ground rent/service charges
  • Mortgage endowment payments (though we should consider if these remain worth such payments in view of the changes in endowment values)
  • Any valid Payment Protection Insurance (PPI) on your mortgage
  • Buildings/Contents Insurances
  • Repairs and Home maintenance costs
  • HP costs re car etc
  • Pension contributions
  • Life Assurance
  • Council Tax (and any arrears)
  • Utility costs – Gas, Electricity, Water, coal, heating oil, Telephone (including mobiles)
  • Internet/Broadband/Cable/Satellite
  • Car costs – Fuel, Road Tax, Car insurance, MOT, Breakdown cover (AA,RAC etc)
  • Public Transport
  • TV Licence
  • Food
  • Clothing for the family
  • Laundry/cleaning/toiletries
  • Newspapers, magazines, cigarettes
  • Health costs – prescriptions, special needs, eye tests
  • Costs incurred for young families – nappies and other such items
  • Appliance rentals
  • Pets – insurance, vet bills, food
  • Allowance for presents – birthdays/Christmas
In addition we need to consider matters such as:
  • Magistrates Court fines
  • Child Support or Maintenance payments
  • Special costs for Child/Adult Care

There are many aspects that need to be taken into account when formulating an affordable monthly payment into the IVA and it is critical that you speak to experts who can advise about what needs to be included.

  • An IVA is a binding agreement over 5 years, and it is therefore important to agree an affordable figure from the outset; what you can afford today may be very different in 4 years’ time!
  • In considering IVA Proposals, creditors generally understand that applicants need to have an acceptable standard of living throughout the IVA term. This does not mean to say that they will agree with every item of expenditure or indeed the amount of this expenditure, though will agree ‘reasonable’ amounts.
  • Typically, creditors will have their own guidelines regarding each line of expenditure and if the costs fall within these levels, they will not raise any further questions. There are guidelines drawn up and revised every year by the Money Advice Trust which cover every one of the above listed items, taken from the Office of National Statistics’ (ONS) figures of ‘average’ expenditures per an ‘average household’ within the UK, and are used by the creditors, British Bankers Association (BBA) and ourselves at National Money amongst others to provide some help in determining what is and is not ‘reasonable’. This does not mean to say that anything outside of these guidelines is not accepted, but we would need to explain why these costs are relevant.
The usual areas where creditors look to challenge tend to be in the areas of:
  • Satellite (SKY) packages, where they feel that anything more than the basic is more a luxury than essential
  • Cigarettes – sometimes OK at fairly low cost levels but will be challenged at high levels
  • Insurances – consider whether essential
  • Utility costs – ensure you have the best/cheapest option
  • Mobile phone costs, particularly where mobiles are paid for in respect of children who can run up large bills if not properly supervised.

So, whilst creditors do not expect you to wear a ’hair shirt’ for 5 years, they do wish to see your commitment to as high a payment as you can reasonably afford, with signs of economies where you are able.

Keep in mind that any non priority costs are ignored for the purposes of calculating your monthly contribution to the IVA. The monthly contribution is calculated by subtracting the total of your essential living costs detailed above from your average monthly income.

Non priority costs are those that are not needed to keep the roof over your head and food on the table, and generally take the form of payments to unsecured debts, such as:
  • Credit cards
  • Overdrafts
  • Unsecured loans
  • Door step loans (loans with a payment book, with payments collected from your door step)
  • Phone bills for phones not operated or used now
  • Utility Bills for previous properties where the utility provider is different to your current provider.
  • Rent arrears for previous properties
  • Outstanding tax bills for years other than the current year (in respect of self employed, traders etc)