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 some equity in my mortgage house, would it be possible to approach my mortgage provider to see if they would remortgage and at the same time clear the two loan debts I have with them, that are currently in my IVA? I just want to be free from the restriction of the IVA, I am about 2.5 years through, but will probably have to pay six.
Hi Julie
It is possible to settle an IVA early with a lump sum made up of equity released by remortgaging your house. The amount you will need to raise will normally have to be the equivalent of the remaining monthly payments you need to pay in multiplied by the amount you pay each month. So given you have 3.5 years it should be 42 mths x your monthly payment.
The first thing you should do is speak to your IVA company. Tell them you are considering releasing equity from your property to settle early. Confirm with them the amount you will need to raise.
It is then worth double checking with your current lender to see if they can help. However they will normally not be able to because you are in an IVA. There are lenders who will help but you will need to speak to a specialist mortgage broker to access them. If you want to get in contact with an appropriate broker please do not hesitate to contact us here at Beat My Debt (0800 077 6180).
James– how much would it cost me to clear a 60 month iva that was originally 19500, I pay £73 a month, I am 14 months into it, there has also been approx. £7200 of mispaid ppi paid into it, it would be done from inheritance money and is it possible to get rid of the 8% statutory interest, the iva fees are approx. £3500. any help would be appreciated thanks.
Hi Jerry
If you receive an inheritance payment during an IVA this must be treated as a windfall. As such the full amount received would have to be paid to your IVA company.
If the amount you have received is large they are entitled to and certainly will take enough to repay 100% of the original debt owed (less of course any money already paid) plus their fees and costs and the 8% interest. There is now way around this.
If there are funds remaining after all these amounts have been paid then you will be able to keep these. Unfortunately there is no way around this.
If I am paying £269 a month and I am 1 year into a 6year plan, if my partner can get an interest free credit card with a high limit can you use it to pay off your IVA or does it have to be cash?
Hi Maddy
The amount you would need to settle your IVA is likely to be around £16,000 (the equivalent of the total of the remaining payments 60 x £269). If the settlement is agreed this amount normally has to be transferred to your IVA company from a third party bank account. I am not sure whether your IVA company could take this as a credit card payment. You would need to check with them.
That said I would strongly advise you and your partner to think hard about borrowing money from a credit to pay off your IVA. If this new debt is not repaid by the end of the interest free period they could risk having to pay substantial extra interest charges.