What is the budget allowance on an IVA?

Unfortunately, there isn't a straightforward answer to this question, because each Individual Voluntary Arrangement (IVA) is tailored to each individual.

Generally speaking, an IVA lasts for around five years, and you are expected to repay as much of your unsecured debts as possible over that time. You may also have to release equity in your home if you're a homeowner - which basically involves borrowing back some of the money you've put into your home.

Budget allowances can vary between IVAs too, and it depends on how much you need to maintain a reasonable standard of living. All sorts of factors matter, like whether you are a parent with a family to support, or you're single, whether you have a mortgage or you rent your own home, and other essential expenses you may have, like maintaining a car for work, or medical expenses.

Of course, the amount you pay depends on what you can afford, so we only recommend IVAs when we think it is an affordable option.

But you may need to make some cut-backs in your spending so that you can repay your debts as quickly as possible on the IVA - and in return you could have a portion of your debts written off completely if you finish the IVA successfully.

Find out more about what you can expect on an IVA here.

IVA budget allowances

Your budget allowances are calculated when your Insolvency Practitioner puts together your IVA proposal. You will know how much you are expected to pay towards your IVA every month and how much you have to live on when your proposal is accepted by your lenders - they vote on it during a 'creditor's meeting'.

Lenders have the right to say no to a proposal if they feel your expenditure is too high in any area. In fact, the owners of 75% of your total unsecured debt value need to agree to an IVA before it can go ahead.

There is no set definition of how much lenders could think is too high, but excessive spending on non-essential items is pretty much a no-no. You have an obligation to repay as much of your debt as possible and lenders don't have to agree to any of it being written off. They're more likely to let you start an IVA if you can demonstrate that you're making every effort to repay your debt - and that might mean changing your budget allowances.

But you can keep essential expenditure for things like clothes for your children or transport for your career, which some people struggle to pay for when they're experiencing debt problems.

If you can afford to make regular monthly payments, an IVA could stop you from going bankrupt, help you stay in your own home and write off some debt on successful completion.

Speak to an IVA expert by leaving your details on this form, and we'll call you back.

By Lucy Bower.