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 am leaving my current job and as a leaving gift my boss would like to loan me the money to clear my IVA. It is currently at the amount of £13,338. What would you think is a realistic amount to offer the creditors?. They have requested for a bank statement from my boss which i know when they see it they will realise he is more than able to pay the full amount. Do you feel due to this they will ask for the full amount?
Also we are going to agree to a monthly amount for me to pay him back, is it going to be a problem that this is a loan and not just a gifted amount of money?
The reason for paying the IVA off is that i am moving house and will be earning a higher income and i would like to clear the IVA so i can save the extra income i will be getting and this will allow me to start saving some money each month to put towards buying a home once the IVA is off my record. Do you feel that they would accept this as a reasonable explanation for clearing the IVA early? Many thanks
Hi Rhiannon
Firstly the amount your boss will have to pay to settle your IVA early will have to be equivalent to the monthly payment you make x the remaining months you have to pay. As such if this is currently £13,338 this this is what he will have to offer. The creditors are only ever likely to accept less than this if your circumstances have taken a turn for the worse and you can no longer pay your IVA. Remember if you are a home owner you may have to add an addition 12 months if there is equity in the property.
The reason your IVA company has asked for a bank statement from your boss is simply to adhere to FCA money laundering rules. They must be aware of where the money is coming from and that it is a legitimate source. The fact that your boss could be a millionaire is irrelevant. The amount he will have to pay is based on the calculation above and not how wealthy he may or may not be.
In terms of paying your boss back I suggest that you do not discuss this to your IVA company. There is no need for them to be made aware of this or be involved. Most people who settle an IVA early with money from a friend or family member agree to pay it back. However this is nothing to do with the IVA company.
I recommend that you do not mention to your IVA company that your income is likely to increase or that you want to be in a position to save more. This would NOT be seen as acceptable by your creditors. Why would they settle early in the knowledge that you re about to earn more and could then be in a position to pay them more…? Your explanation should simply be that your boss has offered to help settle the Arrangement early and this is good as you cannot be certain whether you will be able to sustain your income and thus IVA in the future. There is never any certainty of that and so it is true.
Can i settle an iva early with money i’ve saved by myself?
Hi Steve
This is a good question. The answer in theory is yes as long as the money you have saved is from legitimate amounts you have been able to put by out of your agreed living expenses budget. The issue in normal circumstances is that the amount you are able to save in this way would not be sufficient to make an acceptable settlement offer. The above article discusses how much this would have to be.
If you have been able to save more because you have worked overtime or received bonuses during your IVA it is also possible to use these funds to settle your IVA. However this is only the case if you have previously let your IVA company know about these extra earnings and any required amount has already been paid into the Arrangement.
Hi
I have been paying my IVA for the past 3 years. I have received some inheritance money and would like to make a final settlement payment. I am worried they will take money I want to put aside for my kids.
Hello Craig
If you receive inheritance during an IVA you will have to discuss this with your IVA company. This money is a windfall. As such you will be obliged to hand the full amount over to them. They can then deduct 100% of the debt owed. They can also take their fees charged to date and interest on the original debt at 8% pa from the start date of the IVA.
Only after all these things have been deducted would any remaining money be returned to you.