A monthly payment IVA normally lasts 5-6 years. However it may be possible to settle the Arrangement early if a lump sum can be raised.
- How to settle an IVA early
- What amount of cash will be required?
- Can you borrow the money you need?
- Using a Windfall to settle an IVA
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How to settle an IVA early
Once a monthly payment IVA starts it usually continues for at least 5 years. It is however possible to reduce this period. The Arrangement can be settled early with a lump sum.
While the Arrangement is running you can offer to pay your creditors a one off cash payment. In return they then agree that no further monthly payments will be required.
Once the cash is handed over the Arrangement is completed. The outstanding debt is written off and you are no longer bound by its terms.
Settling your IVA early means you have no further annual reviews of your circumstances. In addition any subsequent increases in income or windfalls you receive are yours to keep.
How much cash is needed to settle an IVA early?
The key question is how much cash will be required to settle an IVA early. There is no one answer to this. The amount required is different in each case and will depend on your specific circumstances.
You may still be in a position maintain your monthly payments but you no longer want to be in the Arrangement. In this situation the amount you need to offer must be similar to the total payments still outstanding.
It might be possible to negotiate a slight discount in recognition of your early payment. However an amount that is too small is likely to be rejected in favour of simply collecting the monthly payments as originally agreed.
If your circumstances have changed and you are no longer in a position to maintain your agreed IVA payments the creditors may be prepared to accept a much lower sum.
Can you borrow money to settle your IVA?
The cash required to settle your IVA early can come from a number of places. The most common is a gift or loan from a family member or friend. Your creditors would not normally entitled to money from this source.
Given this the offer is made on the basis that it will only be available in return for the early settlement of your Arrangement and no further payments being required.
If you are a home owner it may be possible to release equity from your property. This is generally required in the 5th year of your agreement as standard. However if you can raise cash early in this way your creditors will often be prepared to take it to settle the Arrangement immediately
It is possible to remortgage your property during an IVA if the purpose is to settle the agreement early. However it is normally only available if you have at least 15% equity.
Using a Windfall to settle an IVA
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 length of the agreement and you have to continue making your payments.
However some windfalls can be used to 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 are likely to get back into work quickly it may not be possible to use redundancy money to settle an IVA. Your creditors could demand the redundancy you have received as a windfall and also ongoing payments once you are back in work.
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