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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Hello James,
I’m currently under my first year of my iva. Me and my girlfriend recently had a baby and we have another one with 2 years. We are looking to move from our flat to a house with a garden for our older boy. I know my agency will do a credit check and obviously I would fail. I managed to get a guarantor for it.
Would my iva accept this even if I’m paying 55 more pounds towards the rent. Also, my girlfriend started worked, so we can afford that extra 55 pounds. Because she started work will they demand for her to pay as well? It’s not a join iva, it’s just in my name.
I also had a job promotion and I’m getting more money ( I already sent the payslips for the 3 months) I know I will have to pay more towards the iva, because I’m paying more does that mean I will finish it paying it before the 5 years agreement?
Thank you very much!
Hi Diogo
I do not think your IVA company will be concerned about you moving as long as your ability to maintain your current agreed payment is not affected. Remember if you now have a second child then the child benefit you get will increase by £13.70/week (£59.32/mth) so this would cover the rent increase.
In terms of your girlfriend’s job in theory you do not have to inform your IVA company of this because she is not bound by the terms of your IVA. However I would normally advise that you do tell them. She should not have to pay towards your IVA. However because her income is now contributing towards the household expenses your disposable income might go up as a result.
As you say your pay increase is likely to increase your disposable income and therefore your IVA payments will go up because of this. However unfortunately your IVA will not normally be paid off any quicker. You still have to pay for the full 5 years. It simply means that you repay more of the debt you originally owed.
Hi
Ive received an inheritance and would like to use the money to pay off my Iva , would it be worth me phoning the company’s I owe money to directly and settling with them , or going through the company I took the Iva out with
Hi Grant
If you receive inheritance during an IVA you cannot pay off your original creditors directly yourself. The amount you have received is treated as a windfall. As such you must contact your IVA company immediately and let them know.
Whether or not your IVA can be paid off will depend on the amount you have received. Under the terms of the agreement if you receive a windfall you have to pay 100% of the debt you originally owed (less what you have already paid in) plus the IVA company’s fees plus interest on the debt at 8% pa from the date the IVA started.
If all of these amounts are paid then your IVA will be paid and finished. If there is any money from your windfall remaining this is then returned to you. However if the amount you received is not sufficient to pay the total of these amounts the Arrangement continues and you must continue paying your monthly payments as normal.
Hello James,
Thank you for the knowledge you pass across on here..
I entered an IVA with credit fix in May of 2018. I pay £152/Month. My partner is planning to settle this for me so we could rent out my property when my dad is no longer living in it. How much would you reckon they might ask for as a settlement figure on an average basis.
If I am able to settle early what happens to my credit file would the IVA entry be removed or would it still stay for the 5 year duration? I also want to be sure that if I mention my partner paying it off it won’t increase my monthly payment towards my IVA.
I would be glad if you can explain how this works.
Many thanks.
Hi John
As discussed in the above article. Traditionally the amount your partner will have to offer to settle your IVA is an amount equivalent to the sum of your remaining payments. As such if you have 46 months left to pay they would need to be able to offer around £7000 (£152 x 46).
That said in line with some of my more recent comments above it seems as though Creditfix do not always follow this logic. Sometimes in order to settle early they will insist that the full balance of the original debt must be paid. You will need to double check the amount required with them and then decide if it is worth doing. There is no problem discussing this with them. It will not affect your monthly IVA payments.
In terms of your credit file this is very important to understand. Settling your IVA early will NOT improve your credit rating. The record that your IVA existed will remain on the file for the full 5 years from the start date whether you settle early or not.