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. I just got past the first year of my Iva, the remaining payment I need to make in the next 4 years is £5684, and I been offered £5684 as a gift from my auntie to pay it off early.
Is there a slight chance my creditors will accept this proposal seeing it’s paying off the remaining monthly payments in one lump sum and it’s a gift from my auntie not a loan?
Hi Tommy
On the face of it the answer to your question is yes. I do not think there is any reason why your creditors would not accept an early payment of the money they would otherwise have to wait for the next 4 years. That said it will be up to your IVA company so you will need to discuss it with them.
You should expect your IVA company will probably want to do your annual review to confirm that your income and expenses are still the same. If nothing has changed then all well and good. However if your income has gone up or expenses down your subsequent monthly payments would also increase. As such it would stand to reason that the amount you would need to offer to settle would be greater.
In addition to this some IVA companies seem to have different attitudes towards early settlement of IVAs. Some seem to demand more to settle than the sum of your outstanding payments. You will only find this out by speaking to them.
I would be interested to know know how you get on so please keep me up to date.
Hi
I’m currently in an IVA, my parents have offered to give me £4000 to try and get an early settlement out of it. I pay £50 a month and got 2 years left and I owe about £9000. Do you think this will get accepted as the company I am with are taking ages to draw this up.
Also if it gets agreed how long after it getting settled would I be able to get a mortgage and will this be possible?
Many thanks
Hi Emma
Normally if a third party is willing to offer a lump sum to settle an IVA, the creditors will accept an amount equivalent to the total number of payments you have left. So in your case if you are paying £50/mth this would be £1200 (£50 x 24). I cannot really see the point in offering £4000 when you would only have to pay £1200 if you continue making the payments as normal. That is unless you have a really pressing and urgent reason to settle your IVA asap.
To answer your second question, you can certainly get a mortgage once your IVA is finished. However not before the record of your IVA has come off your credit file (which will be 6 years from the start date). The record does not come off your file any quicker if you settle the arrangement early. As such if your key driver for settling early is getting a mortgage I would not bother unless the amount you have to pay is no more than £1200.
Hi James
Thankyou for the reply, really useful information, the reason why I want to settle iva is so I can go fulltime at work and not worry about having the iva company take 50% of any extra income… I’ve already offered £4000 do you I could change the settlement fee?
Many thanks
No problem at all Emma
If you have already offered the £4k I think you will have to stick with it. If you try and reduce now your IVA company is likely to say they have already put the proposal forward and it can’t be changed….