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’m half way through IVA. I owe about 4500 and would like to pay it off early. The company has said I would need to pay the other 4.5k.
When they did a PPI check they found 15k from Lloyds bank which was owed to me. This went into the iva. So I have already payed in more then I should. So would they take less then 4.5k as final settlement?
Also so if I knew Lloyds owed me 15k I would not of need a IVA. Why did they not do a PPI check before doing the IVA? I feel like I been stitched up.
Hi Andy
The standard terms and conditions of an IVA are very clear when it comes to windfalls (which is what PPI compensation is classed as). They say that if you get a windfall of more than £500 it has to be paid into the Arrangement. It does not mean the IVA is paid any earlier. Your creditors simply get back a greater percentage of the money they are owed.
Once your PPI windfall was paid into the arrangement it would only be settled early if the windfall was great enough to pay off 100% of your original debt, the remaining IP fees and statutory interest at 8% pa. If not your payments would have to continue as normal. These are the rules you signed up to when you started the agreement I am afraid. If the total of your remaining payments is £4500 then this is the amount you will have to pay to settle it early. Your IVA company do not have to take any less than this.
In terms of whether they should have checked whether you had PPI before you started your IVA the answer is no. This was not their responsibility. They are only responsible to check for PPI once the IVA is agreed and in place. It is just unfortunate that you did not check yourself before you decided to apply.
Hi, I may be getting a critical illness payment soon. This would be for around £82000 (enough to clear my mortgage). My IVA was for £30000 and started in May 2018 and my payments have always been £238 a month.
Should I call and ask them how much I need to pay or should I offer what the payments would come to after 6 years? I’m guessing it wold be still around £30000 to clear as my payments so far may have covered the fees.
My mortgage started in 2017 and is on fixed rates for 10 years but at an interest rate of 3.99% so I don’t think there’d be much equity in my property.
Hi Sadie
Normally if you get a large windfall during your IVA you will need to pay the following amounts:
– The total balance of the debt you originally owed when you started the arrangement (less the payments you have already made).
– The full IVA fees due to the IVA company.
– Interest on your debt at 8% per year from the start date of the Arrangement.
The remainder of the money will then be yours to keep.
Now there are some circumstances when a windfall is treated differently and you can simply keep it. One of these is if you get compensation for personal injury paid on the basis of pain and suffering. Your IVA company might take the view that a critical illness payment falls into the same category.
You must discuss this critical illness payment with your IVA company. They will confirm to you how it will need to be treated.
My ex wife and I have 2 joint debts. I have paid 1 off and am aiming to pay the other off in a few months so we can both move on financially. She is in an iva that she has been in for 18mnths of a 6 yr term. If I pay the total full amount of the existing debt will this cease her iva and her payments stop. Or will she have any excess through charges to pay
Hi Andrew
If you pay off these joint debts your ex will need to inform your IVA company this have been done. However it is unlikely her IVA will stop immediately. If there were other debts included in the Arrangement she will need to continue paying it as agreed. It will simply mean the remaining creditors are paid more of what they are owed.
If these were the only debts in her Arrangement then whether the IVA will stop immediately will depend on the attitude of the IVA company. Some companies would probably take the view that the Arrangement could be settled immediately. Others might say she has to keep paying until the total of their fees are paid and interest on the original debt of 8% pa from the start date of the IVA.
My advise would be that she should speak to her IVA company and find out how they will deal with the situation.