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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Hello
I have 9 months left on my IVA and my auntie has said she will lend me the money to pay it off completely. The IVA company said that it may not be accepted and I can’t understand that. Surely they all will just want the payment.
They are trying to get more than the amount outstanding, saying theyre more likely to accept if I offer more. Do you think that is true or are they just trying to get more money from me?
Hi Pip
It sounds as though your IVA company are trying to get you to pay more so they can charge a higher fee. There is absolutely no reason why your creditors would not accept an offer of full payment now rather than waiting for the same amount to be paid over the next 9 months.
Your IVA company cannot refuse to put a reasonable offer of settlement to your creditors. If you are offering to pay in full now the same amount as would be paid over the remainder of the IVA then this is absolutely reasonable.
I suggest you insist that your IVA company puts this offer to your creditors. If they will not you should threaten to escalate a complaint to the insolvency service.
Hi,
Ive just been accept for an IVA, my parents are selling the house I rent off them and are gifting me a large amount of the money from the sale. Can I use that to pay off the IVA early?
Also if i dont use it and just put it into a saving account is that allowed?
Hi Lee
You need to manage this situation very carefully. The best outcome would be for you not to take any money directly from your parents until your IVA is settled. You should speak to your IVA company and tell them your parents want to help you settle early and are prepared to offer a lump sum. As discussed in the article above they will normally have to pay the equivalent (or just less) of the amount outstanding in your arrangement.
I strongly advise you NOT to take any money from your parents until the settlement of your IVA is agreed, the settlement amount handed over and you have your completion certificate.
If your parents simply hand you a large lump sum during your IVA you cannot just keep it. It will be considered a windfall. You will then have to pay the total outstanding on your IVA, the IVA company fees and 8% interest pa on the debt from the start date of the IVA. This will be a lot more costly for you.
I have been in my IVA for just over 4 years and pay substantially more now than I did at the beginning. At the end of the 5 years I will have paid roughly £2700 more than the original debt.
I have enquired with my IVA company how much I would need to complete the IVA but they were reluctant to give me a figure until I have achieved the 100% because of the complicated way of calculating the 8% interest. Am I right to insist upon a figure or am I jumping the gun a bit?
Also I have been refused a re-mortgage from my current mortgage provider to release equity, are there any reputable mortgage providers that would consider giving a mortgage or that specialise in mortgages for this purpose?
Hi Sally
If you want to make an offer to settle your IVA early it is absolutely your right to do so. Clearly the money has to come from a third party. As discussed in the article above you will generally need to offer a sum similar to the total of your payments outstanding. If you go to your IVA company with this offer they cannot refuse to put it to your creditors.
In terms of remortgaging to settle early you are right your current lender is very unlikely to entertain this. However there are some specialist lenders who might be able to help. You can read more about this and how to access them here: Remortgage during an IVA