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,
Reading through your article and the questions and answers I can see that your very knowledgable and good at putting across info clearly so it’s easy for anyone to understand, so I’m wondering if you could help me with the following question/s please?
Myself and my wife have each been in an IVA since May 2015, and they due to end next May 2020, although they will probably be extended for another year due to the equity clause. We both had separate debts, but we had a joint debt which was an unsecured part of our mortgage that has gone in, that we are both individually responsible for which was approx 25k at the time.
As we’re nearing the end I thought I would find out how much was actually left of the debt to clear 100% whilst I was doing this I realised that from the beginning, the 25k had been added each to both of our total debt, so in other words 50k total.
My debt going in was just over 50k, my wife’s approx 45k, yet these figures both include the 25k.
Shouldn’t the 25k have been split across both of us? As it seems that we are paying back double. Or is it that when we come to the end it will look like a larger percentage has been written off?
For me our total debt was 75k, combined we have already paid approx 64k, yet my IVA company are telling me we are way off track of paying the 100% back!
Hope this makes sense as I was confusing myself just writing it…..
Regards
Dave
Hi Dave
Your IVAs have been set up correctly. If you have a joint debt you are both liable for 100% of the balance. As such if you both do an IVA the total debt must be included in both the Arrangements. If you were to carry on with the agreements as normal this would not matter. Any debt remaining in either IVA would be written off at the end.
However if you want to try to settle early do you then have to pay this debt twice? The answer to this is clearly no. If you were looking to repay the debt in total your IVA company could only include the £25k balance once in this calculation.
Given this I suspect one of two things has happened. Either the person you spoke to in your IVA company was confused and did not realise that this was a joint debt duplicated across your 2 IVAs. Or when considering the amount required to pay in full they are adding to the balance their total fee and statutory interest at 8% pa from the start date of the arrangements (which they can do).
I suggest you go back to your IVA company and clarify exactly how much they feel would be required to settle your Arrangements and how they come to this figure. You can then make a sensible decision about whether you want to pursue this option or simply continue paying as per the agreements.
Hi James,
I am coming to the end of an IVA and am now obliged to make an extra monthly payment to cover a payment holiday I was granted during the first year.
Please can you advise whether I should make the extra months payment at my current contribution level or at the level that I was paying at the time. (My contributions were adjusted due to a change in my income).
Thanks,
Dave
Hi Dave
A standard IVA will normally require you to make up any payments missed due to a payment break at the end of the arrangement but with a max of 12 extra payments. In other words your liability is the amount you would have paid at the time you took the payment break had you not taken it.
I am aware that some IVA companies say that if you missed payments then the equivalent number need to be added to the end. This would make sense if your payment amounts have not changed. However if they have gone up then it stands to reason that you would only have to pay a sufficient number to make up the value of the payments you missed.
If your IVA company is arguing otherwise I would ask them to point to the clause in your IVA where it says that. As far as I am aware it would be a non standard clause if indeed it exists at all.
Hi James
I have called Creditfix advising that I want to make a full and final payment. They said to clear I need to pay 1872. However I am paying 104/month and have 14 months to go which would make 1460. They said if I offered this it would probably rejected is this true?
I am currently under expenditure review and unable to provide receipts for purchases as I have never been asked before I had disposed of them. What do I do? As I know u said they will still need to do one after I make final offer. What do I get mum to write in this as she got a loan to pay this off for me.
Hi Michelle
As discussed in the above article traditionally IVA companies will be happy to put forward an offer to settle an IVA based on the amount equivalent to the total payments remaining (in your case £1460). However the problem in your case might be the variation fee.
When your IVA company makes an offer to your creditors to settle early they are allowed to charge this addition fee. I would assume that this is the extra £400 that Creditfix are asking for bringing the amount to £1872. If you do not pay this they would have to take it out of the £1460 offer you make which would then leave only around £1000 for the creditors. Based on this they might reject the proposal preferring just to wait for the next 14 months to collect all their money.
Double check with Creditfix but I suspect this is the issue. If not you should ask them why the extra money is needed. However whatever the reason I suspect they will not help you move forward unless you offer the £1872 they say is needed.
Regarding you expenditure review I would think you will only need purchase receipts if you are trying to argue your expenses have increased. If they have stayed the same as the figures in your current agreed budget I cannot see why creditfix would need them. You do not include repayments to your mum in this expenses budget. This is a payment you will incur in the future only if your IVA is settled.