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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Can I pay off IVA from overtime money.
I just did extra 100 hours of ot, so can cover last 12 months payments. Woukd like to do so ASAP.
Hi Marcin
If you earn overtime during an IVA you cannot keep all this extra money. The terms of the Arrangement state you will have to pay approximately 50% into your IVA. You can keep the rest. The result is your creditors will be paid back more of their debt. The length of your IVA does not reduce.
Have you told your IVA company you have been earning extra money? If not I urge you to tell them asap. They will find out anyway once they do your annual review as they are likely to ask for your bank statements and wage slips……
As discussed in the article above the amount you will need to settle your IVA early is normally the equivalent of the remaining payments you have left. Once you have handed 50% of your overtime over there may not be enough left to do this. If not I think it will be unlikely your IVA company will accept it to settle early.
Hi, I have a iva plan. I have 2600 left to pay. I offered to pay back so I get out early. They are saying I need to show proof where the money came from. I got it from the council for the home loss as there knocking my house down so they gave me the money….
Hi Tracy
Your IVA company are quite within their rights to ask where the funds came from. They have to do this to check whether this money should be a treated as a windfall. If so you cannot use it to settle your IVA early. It would have to be paid into the Arrangement in addition to your ongoing payments. You will need to speak to them and explain how you got the funds.
From what you have said it seems to me that the money you will be regarded as a windfall. As such you will simply have to pay it into the Arrangement I am afraid. The only way round this might be if the council have not re-housed you and you need the cash to get set up in new accommodation. However I would think this would be pretty unlikely especially as you are saying the money is free to use to settle your IVA…..
Hi,
I was left money in a Will from my mother , Can I pay off my Iva early . The company is Aperture, I have about 4 years left at £175 per month , What are your suggestions .Thanks
Hi Colin
Unfortunately I may not have very good news for you. If you receive an inheritance payment while you are in an IVA this is a windfall. As such you cannot simply use it to settle your IVA.
You must inform your IVA company (Aperture) that you have received the money. Given the terms of your IVA are standard, they are legally entitled to take the following amounts from you:
-The total of your original debt (less any payments you have already made
-The total of their fees and costs
-8% interest on the total debt from the start date of the IVA
If the inheritance you have received is greater than the total of all of these amounts your IVA will be completed and you will be allowed to keep any remaining balance. However if the total you have received is less than these amounts you will have to hand it all over to your IVA company and continue making your monthly payments as normal.