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.
Included in this article:
- How to settle and IVA early
- What amount of cash is required?
- Where can the money you need come from?
- Can you use a windfall you have received?
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How to settle an IVA early
Once a monthly payment IVA starts it usually lasts for 5-6 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 the IVA. There is no one answer to this. The amount required is different in each case and will depend on your specific circumstances.
As a rule of thumb you will need to pay an amount equal to the total of your outstanding monthly payments. So for example if you are paying £200/mth and have 24 months to go you would need to offer £4800 (£200 x 24).
You circumstances may have changed meaning you are no longer in a position to maintain your IVA payments. In this situation your creditors may be prepared to accept a lower amount.
The amount required to settle your IVA must first be agreed with your IVA company. Most will consider a sum equivalent to your outstanding payments. However others may demand more.
Where can the money you need come from?
The cash required to settle your IVA early can come from a number of places. However it cannot be money that your creditors would normally be entitled to.
As such, the most common source is a gift or loan from a family member or friend. Money offered in this way is only available to your creditors to settle your Arrangement. In the absence of such an agreement they would not be able to get their hands on it.
If you are a home owner it may be possible to release equity from your property. If you can raise cash in this way your creditors will often be prepared to take this to settle the Arrangement immediately
Remortgaging to settle an IVA will require the assistance of a specialist broker. Call us (0800 077 6180) or complete the form below for help with this.
Can you use a Windfall to settle your 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.
That said some windfalls can be used to to settle an IVA early in specific circumstances. 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 to settle your Arrangement.
However this will only be the case if it is clear you will be unable to get a new job (perhaps due to ill health or your age). Where you can get back into employment it is very different. You will be allowed to keep some of your redundancy money to maintain your living expenses and IVA payments. The rest will have to be paid into the Arrangement.
It is not usually possible to settle an IVA early after receiving a windfall. This money usually has to be paid into your Arrangement on top of your normal monthly payments.
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I’m paying my iva off early due to me selling my house and moving. I have a lot of equity and I don’t mind paying it back but I am paying back more than I started at least 15000 pounds extra is this right?
Hi Gary
If you sell your house during an IVA the money you raise from the sale (or your share of this if the property is in joint names) is considered to be a windfall. In other words 100% of your share of the money raised will have to be handed over to your IVA company.
In these circumstances the following amounts have to be paid: Firstly the total debt owed to your creditors on the day you started your IVA (less any payments you have already made into your Arrangement). Secondly any fees and costs incurred by your IVA company up until the date the windfall was received and associated with settling the IVA thereafter. Thirdly interest charged at 8% per year on the total debt you owed when you started the IVA for the number of years you were in your IVA.
Given this you can see that the total you will have to pay back in these circumstances could easily be a number of thousands of pounds more than the total detbt you originally owed. For this reason it is always sensible to get independent advice before selling a property during an IVA.
Hi
I am in an IVA but my Mum has offered to to give me a lump sum to pay this off. Will it remain on my credit file for the full 6 years?
Hi Tabs
This is a very important question to ask. The answer is yes. It does not matter whether you settle your IVA early. The record will still remain on your credit file for the full 6 years from the start date.
This is very important to understand if you plan to apply for a mortgage after your IVA is finished. Even if you settle the Arrangement early you are still likely to have to wait for the full 6 years when the record comes off your credit file to get a mortgage.
I have been able to release pension money. I want to pay back IVA . Original debt was 12000 but IVA agreement was 6000. Will I pay back the higher amount or the agreed 6000?
Hi John
From what you have said I assume that you have already released these funds? If this is the case and you did not get prior agreement from your IVA company to use these to settle your IVA it will be a problem.
The issue is if you release cash from your pension during your IVA without prior agreement from your IVA company it is treated as a windfall. As such you will have to hand the full amount over to your IVA company. You will then have to continue paying your ongoing IVA payments as normal. The IVA will not be settled early unless you have withdrawn sufficient to pay the total debt owed at the start of your IVA + IP fees and interest.
Having said the above it is possible to settle an IVA with money from your pension. However you must agree the figure you will need to release with your IVA company before taking the money. They will put the offer to your creditors which will then either be accepted or rejected.
If accepted you go ahead and release the agreed funds. If rejected you can either up the offer or withdraw it and keep the funds in your pension. You cannot be forced to withdraw more if you do not want to. You then simply continue to pay your IVA as normal.