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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Hi James
I have been in an IVA from Dec 15 I have 18 months left. My mum is getting inheritance money which she is going to gift me to pay IVA. If I offer my 104 x 18 months does that mean my IVA will be cleared or do I pay interest too.
Also I don’t own property I have absolutely nothing to offer I just rent from someone will their house be ok when IVA is done I’m terrified that they will lose their home
Hi Michelle
Given what you have said about your situation you should be able to settle your IVA early if your Mum can offer to pay the balance of £1872 (£104 x 18) in a lump sum. Your creditors would not hope to get any more than this if you continued paying your IVA as normal so I can see no reason why they would not go for it.
The one proviso I would add is unfortunately it will depend on the IVA company you are using. I believe most IVA companies would help you to settle in the way I have described. However if you are with Credit Fix you might have problems. I am hearing more and more that they are refusing to put forward these types of settlement offers. Instead they seem to say the only way to settle is to pay the full remaining balance of what you owed when you started the IVA.
In my view this demand is wrong. An IVA company is bound to put an offer of early settlement to creditors as long as it is reasonable. Paying the full amount that you would otherwise pay monthly seems very reasonable to me. However if you are with Credit Fix it seems they do not see things this way.
Hi James thanks for your response I am in fact with Creditfix are you able to advise on the house situation. I was going to offer the 1872 in hope that I would clear it I had asked a few times how much balance was but was hard to give me an answer, I started with just over 7k I had been paying 80 pound for 1 year then it was increased to 104 pound then I was told few weeks ago one of creditors said they would refund 1900 on my balance. I would of thought considering what I have paid and what has came off and then offering the 1872 I hope it would be over and done with
Hi Michelle
As I mentioned above Credit Fix do not seem to make settling an IVA early very easy. All I can suggest is when you speak to them you make it very clear that you want to settle your IVA early with a lump sum from a third party. Offer £1872 on the basis this is what you would otherwise pay. Once you have spoken to them please do let me know what they say and I will try to advise further.
In terms of your landlord’s property you have absolutely no need to worry. Their house is not affected by your IVA. It is just your credit rating that is affected. This would be exactly the same if you were living with parents or anyone else in their property.
Hi James.
If you could spare a moment for a quick question.
Now I understand it’s totally down to the creditors to accept an offer for full and final. But based on your experiences if one was to offer the remaining months (16) x monthly payments (130) £2080 as a full and final offer. How likely is this to be accepted? Is it still 50/50 or very much a certainty that it will be accepted? Thanks
Hi David
Normally I would say this type of offer should have a very good chance of being accepted. If your circumstances are unlikely to change in the next 16 months then the total additional amount you will pay into your IVA will be £2080 (£130 x 16). As such why would the creditors say no to getting the £2080 now in a lump sum rather than waiting 16 months.
Traditionally you would only have to consider offering more if your IVA company is aware that your circumstances will change in the next 16 months (ie your surplus income is due to increase) or you are a home owner and so have to take into account possible equity release from your property.
Having said all of that as I have mentioned above more recently I am hearing some IVA companies themselves are not being helpful when it comes to settling IVAs early. I am aware that for some reason Creditfix are saying that the Arrangement can only be settled early if the full balance of the original debt is paid. I am yet to fully understand why they are taking this stance.