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. My husband is willing to lend me the money to pay off my iva. Is this okay?
Hi Sophie
The answer is yes. Your husband can certainly pay off your IVA on your behalf using his own money. As highlighted in the article above the amount required will generally have to be equal to the number of months left in your IVA x the monthly payment. In other words if you are paying £150/mth and have 24 months (2 years to go) the amount offered will have to be approximately £3600.
Hi
Im trying to decide what is a reasonable offer to make to my IVA company if I want to sell my home to pay off the IVA. My IVA Company have told me tbey cant give me a settlement figure until AFTER i have sold the house…..
Hi Arthur
You need to be very very careful about selling your house during an IVA. If you do without a prior written agreement with your IVA company about how much of the equity they can take then all the equity released is considered to be a windfall and will be paid into your Arrangement in full. They are then allowed to deduct the following from the amount received:
– Enough to pay 100% of the debt you owed when you started your IVA (less the payments you have already made.
– Enough to pay their costs and fees in full
– Enough to pay interest on the original amount of debt you owed at 8% per year from the start date of your IVA
As such you could end up paying £1000s more than you owed when you started the IVA
I am surprised that your IVA company has not explained that to you. It is a relatively simply calculation for them to make. For them to tell you that they cannot give you a figure until after your house is sold is very poor. It seems to me that they are avoiding telling you the reality.
Having said the above it ought to be possible to settle your IVA early for a reasonable amount by selling your house. This is because legally you cannot be forced to sell. If the offer you make is not acceptable to your creditors it can be withdrawn and you simply continue paying your monthly payments as before.
A reasonable offer would be your monthly payment multiplied by the number of months left on your agreement (given you are a home owner remember to add an extra 12 months in lieu of the equity in your property).
Your IVA company is obliged to put any reasonable offer you make to your creditors. As such you should be able to go to them with this and ask them to make the offer. However remember DO NOT sell your property until any such offer is agreed and you have the agreement in writing.
Hi
I am in a I.V.A already and I am struggling to afford the monthly repayments because of a 2nd baby. I pay £150/mth and I have 44 months left to pay on it. My mother in law has offered to settle my remaining balance in one large sum. Can this work and how do we go about it and how long does it take to do this and how much should she offer?
Hi Lizzie
A third party like your Mother in Law can certainly settle your IVA on your behalf by paying a lump sum. On the face of it the amount she will need to pay must be the equivalent of the normal monthly payment multiplied by the remaining months. As such in your case she would need to pay £150 x 44 = £6600. As highlighted in the article above you may be able to negotiate a slightly lower amount given your circumstances have changed and you will struggle to maintain the ongoing payments.
Your IVA company will implement this for you so you will need to discuss it with them. They first have to put the offer in writing to your creditors. This is called a variation. If the majority accept the variation it is legally binding on them all. Your IVA company would then let you know and your Mother in Law can make the payment.
The process normally takes 3 months and you will need to keep up with your monthly payment in the meantime. However you may be able to negotiate that anything you pay while you are waiting can be deducted from the lump sum which eventually has to be handed over.