If your debts have become completely unmanageable, you`ll want to find a debt solution that can bring your debt repayments down to an affordable level.
One such debt solution is an IVA: an agreement with your lenders in which you will pay as much as you can afford towards your debts for an agreed period of time (usually five years), before the remaining debt is written off.
Your monthly payments on an IVA will be as much as you can afford, based on your other essential living expenses. To calculate this, you`ll need to work out a monthly budget plan.
Your budget plan should set out all of your essential living expenses, not including your unsecured debts, as well as your income.
Here`s a simplified example of what could go on your budget plan - we`ve included a brief list of your likely regular costs, as well as `other expenses`, but in reality you`d have to set out all your regular costs in detail.
| Take-home income (monthly) | £1,175 |
| Expenses | |
| Mortgage/rent | £400 |
| Utility bills | £80 |
| Phone | £15 |
| Food costs | £300 |
| [Other expenses] | £100 |
| TOTAL | £895 |
Your take-home pay (£1,175) minus total outgoings (£895) leaves you with £280 to put towards your IVA each month. This amount (minus any costs associated with the IVA itself) will usually be split between your lenders on a pro rata basis (in line with the percentage of your total debts you owe to each lender).
Some IVA companies say that you will need to be able to contribute at least £200 a month towards your debts to qualify for an IVA, but this isn`t always the case.
Whether or not you will qualify ultimately depends on what your Insolvency Practitioner (IP) can agree with your lenders. As a general rule, it depends on whether your lenders feel they are getting back a reasonable proportion of what they are owed. If this can be achieved, you may well be able to enter an IVA paying less than £200 a month.
As with any debt solution, you should consider whether an IVA is the right option for you before you go ahead. It may be that another debt solution, such as bankruptcy or a debt management plan, is more appropriate.
If you`re unsure, click here for more information or call one of our expert debt advisers on 0800 195 2911.
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