Early Settlement of an IVA
An Individual Voluntary Arrangement or an IVA, is a legal method of resolving debt problems. It allows a person to repay a percentage of their unsecured debt back to their creditors in affordable monthly instalments over a fixed term, usually around 5 years.
Once the IVA successfully completes the remaining debt is written off and you’ll be issued with a certificate of completion. At this point any balances outstanding on the debts included in your IVA will be written off.
However, there are occasions when it may be possible to pay off your IVA early and free yourself from its constraints... but, there are some things which you should consider before taking on such a solution.
Pros and Cons of settling an IVA early
- You are no longer bound by the constraints of an IVA and are no longer required to provide proof of your income and expenditure each year.
- Should you receive an increase in pay or receive any windfalls after it has settled, the money is yours to keep.
- You can start to rebuild your credit score, although it may be a slow process it allows you a head start before the IVA drops off your credit report.
Things to consider;
- Although you have paid off your IVA early, it will still be listed on your credit report for six years from the date of approval.
- It may still affect your ability to get credit and it is unlikely that you will be able to obtain large amounts of credit such as a mortgage straight away.
How to pay off your IVA early
You will need to offer your creditors one lump sum and agree that when this is paid, no more monthly payments will be required from you. If they accept this payment, the debt will be considered as settled and the IVA closed.
If you wish to settle your IVA you must propose this to your IP (Insolvency Practitioner). If the IP feels that the offer is reasonable and likely to be accepted by your creditors, they will arrange a variation meeting; this is proposed when there has been a significant change to your arrangement.
Like the original proposal, 75% of your creditors by value who vote on your variation, have to agree to a variation on your IVA before it can go ahead.
To settle your IVA early you need to have a strong reason for doing so for your creditors to accept your offer. You also need to be clear where the money is coming from so that your creditors can be sure it is coming from a legitimate source and to ensure they would not have been entitled to the money anyway, for example, an inheritance. If this was the case creditors may be less inclined to accept an early settlement. You also need to be sure that you can afford to offer up this lump sum and that by doing so, you do not leave yourself in the position where you are unable to repay a new debt.
How much money is needed to settle my IVA?
No two IVAs are the same and the money needed to settle the arrangement will be different for each individual. The amount needed depends entirely on how much is left on the arrangement.
The best advice is to offer as close to the amount you owe as possible.
For example, if you pay £150 a month and there are 15 months left of your arrangement;
15 x 150 = 2,250
this means you will need to suggest paying £2,250 or as close to this as possible for your creditors to consider an early settlement. If you make an offer and your creditors reject it, you will simply continue making your payments into the arrangement as originally agreed. If there has been a significant change in your circumstances, for example, you have lost your job, you can offer a lower sum that is owed but there is no guarantee that this will be accepted.
What funds can be used to settle the IVA?
Given that you have entered into an IVA to gain control of your finances, it is not advised that you borrow money to settle your IVA as this debt to another person may become unaffordable and that brings you right back to square one.
In most cases, the money is gifted by a family member or friend.
If you receive a windfall during your IVA it will normally have to be paid into the arrangement in full. The injection of the extra funds does not reduce the length of the agreement and you have to continue making your payments.
However, some windfalls can be used to settle an IVA early. One example of this is a redundancy payment. If you lose your job you may be able to offer the redundancy money you have received in full settlement of your arrangement.
If you are unlikely to get a new job your creditors will normally settle for just part of your redundancy money. You will be allowed to keep some to live on. However, this will usually only be enough to cover 3 months living expenses.
If you require more information or wish to discuss an early settlement you can contact us on 0333 939 7920 and speak to a member of our team to hear the options available to you.