A monthly payment IVA will generally last for 5 years. However there are circumstances which could result in the Arrangement being either extended or settled early.
Included in this article:
- How long will a standard IVA last?
- Can the length of the Arrangement increase?
- Is the Arrangement paid faster if you pay more?
- Can an IVA be settled early?
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How long will an Individual Voluntary Arrangement last?
A standard monthly payment IVA will last for 5 years. How long will your credit rating be affected by the IVA? What happens to any unpaid debt once the Arrangement is over? To find out more please visit: http://beatmydebt.com/individual-voluntary-arrangement-frequently-asked-questions/iva-how-long-does-an-iva-last
How long will an IVA last?
The length of a monthly payment IVA is traditionally 5 years. This is not a legally required period. It is simply a standard that has become widely accepted by creditors.
It is possible for a creditor to insist that the length of an Arrangement be extended to 6 or even 7 years. However this will only be agreed if their debt is significant and could cause the proposal to fail if their demands are not met.
A good example of a creditor who will normally demand this type of extension is NRAM (formerly Northern Rock). This is because their “together loan” would normally have been repaid over 10-20 years.
If you can make a cash lump sum available it may be possible to do an IVA without making any monthly payments at all. This is known as a full and final settlement IVA. It is completed as soon as the agreed lump sum is paid.
Can the length of an IVA increase after it is agreed?
Once an IVA is in place the number of payments that must be made into it are fixed. However this is only the case if they are then maintained and the other requirements of the Arrangement met.
If your financial situation becomes worse you may no longer be able to afford the agreed payments. In these circumstances it might be possible to reduce the monthly amount you pay.
However in exchange for being allowed to do this it is likely that the number of payments you have to make will be extended. The extension would usually be an additional 12 months.
If you are a home owner you will normally have to release equity from your property if possible. If there is equity you cannot release your payments may be extended by 12 extra months to compensate.
Is the Arrangement paid faster if you pay more?
If your income increases or your expenses fall during an IVA you may have to increase the amount you pay into the Arrangement each month.
However where this happens it does not mean the Arrangement will be finished any sooner. It will last for exactly the same length of time. You will still have to pay all the remaining number of payments due.
This is because the total amount payable to your creditors in an IVA is not fixed. If you are able to pay more for any reason you will have to do so. But this simply means your creditors are repaid more of their debt overall.
In rare cases if your IVA payments increase you could end up repaying more than you originally owed. This is because where possible you are obliged to pay the total of your debt + fees + interest at 8% pa from the start date of the IVA.
Can an IVA ever be Settled Early?
It is possible to settle an IVA early. You can do this by offering to pay your creditors a one off cash lump sum in exchange for the immediate completion of the Arrangement.
The size of the lump sum required will depend on how much you still have to pay into your IVA. It will also depend on your personal circumstances at the time you make the offer.
It may be possible to settle early for a relatively small sum if you are no longer capable of maintaining the monthly payments. This may be because you have been made redundant or become ill.
If your circumstances have not changed but a third party is willing to lend you money to settle your IVA it is likely that only a small discount off the total of your remaining monthly payments will be given.
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My original IVA agreement over 60 months with an equity payment totalled £33,486.85. With pay rises this figure at 60 months including the equity release at the moment is approx £42,271.12. My original debt was £26529.01 then the fees etc needed to be added on.
My question is, does this new figure seem high? They have said if I payback 100p to the £1 then I wouldn’t have to keep making payments. Also I have seen added interest mentioned in lots of forums. My interest was frozen and there is no mention in any document of added interest charges.
Thanks in advance
Hi Helen
From what you have said if you continue with your IVA you may repay nearly £16k more than you originally owed. This actually looks about right.
Under the terms and conditions of your IVA (the small print) I am 100% certain it will say that in the event of you being able to pay more your IP is allowed to collect up to 100% of the debt you originally owed + their fees + statutory interest on the debt of 8% pa for the duration of the IVA. Normally in an IVA you are right no further interest is charged. However in these special circumstances it can be.
The fees and costs charged by your IP are likely to be around £5,500 – £6000. Interest at 8% pa is about £2000k per year on your debt so over 5 years this would be £10k. You should check with your IVA company but I would be pretty sure This is where the extra £16k comes from.
Given this you have two options. You accept the situation and carry on. Alternatively you could consider stopping your IVA and pay off your debt using a debt management plan (I assume you are a home owner and therefore bankruptcy is not an option). This might work out a cheaper option depending on how many payments you have already made…..
Hi I’m 6 months in to my Iva with creditfix. My total debt was around £16,000. When my Iva was accepted 6 months ago the agreement is to pay £116 a month so my total repayment is £6960.
I’ve payed £696 (6 x £116) so far and £246.69 (bonus) also £3432.69 (tax rebate) so I’ve payed £4375.38 so take £4375.38 away from £6960 which leaves £2584.62 left to pay in my Iva. Will I carry on paying £116 a month until the £2584.62 is payed or will it be for the remaining 4 in a half years even tho it will be payed off before then?
Hope this made sense
Hi Tommy
Even though extra money has been paid into your IVA you will have to continue paying your monthly payments for the full remaining 4.5 years. The reason for this is that the amount you pay into an IVA is not fixed.
The amount paid into an IVA can increase as a result of windfalls (such as your tax rebate) and if your monthly payments go up (as a result of a bonus or an increase in income). The overall affect is simply that your creditors are repaid more of the debt they were originally owed.
Hello there
I have a question on could my IVA end early. My original debt was £26,529 when I started my IVA in July 2015. As of July 2020 end of the 5th year I will have paid £37,040. I have a 6th year as there was not enough for an equity release so in total will pay just over £50k. Would there ever be an instance where they go you’ve paid enough?
Thanks in advance
Helen
Hi Helen
From what you have said I assume the amount you pay into your IVA has increased since you started it. Where this happens it does not mean that your IVA will be paid off early. The terms of most IVA agreements will state that where it is possible due to an increase in income or other windfalls the following amounts have to be paid: 100% of the original debt owed + IVA company fees + interest of 8% per year on the original debt from the start date of the agreement.
I assume that your IVA company charged a nominee fee of around £1000 and supervisory fees of 15% of realisations (amount of debt paid). As such if you are able to repay 100% of your debt the total fees would be around £5000 + some costs. On top, the interest you would pay would be around £12700 (8% pa for 6 years). So the total amount repayable in your case would be around £26529 + £5000 + £12700 = £44229
This situation is very rare and only happens if your income increases significantly during the IVA. However unfortunately it does seem to have happened in your case. Based on my calculation I think paying over £50k would be too much. I suggest you speak to your IVA company and get them to give you a schedule confirming how they have calculated the total you will pay. You can then compare it to my analysis and question it if necessary.
For others reading this, if you are in an IVA and believe you will end up paying much more than your original debt you need to take advice. You might be better off stopping your IVA. You could then pay off your debt with a debt management plan and save yourself potentially thousands in fees and interest. We would be happy to discuss this with you if you want to give us a call (0800 077 6180).