If you cannot afford monthly payments but can make a one off lump sum available a Full and Final Settlement IVA could be for you.
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- What is a full and final settlement IVA?
- How much does the lump sum have to be?
- Where can the cash come from?
- When does the lump sum have to be paid?
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What is a Full and Final Settlement IVA?
A full and final settlement IVA involves making a single lump sum payment to settle your debts. Unlike a normal IVA there are no ongoing monthly payments. Once the lump sum is paid the Arrangement is completed immediately.
This type of agreement means you are free from your debt as soon as the lump sum is paid. From then on how you spend any money you earn is your decision. There are no further reviews of your circumstances.
If your income increases in the future or you receive a windfall this additional money is yours to keep. It cannot be claimed by your creditors.
Once a full and final IVA is completed your name comes off the Insolvency Register. However your credit rating will still be affected for 6 years.
How much cash is required for a Full and Final Settlement IVA?
There is no fixed amount that has to be paid to achieve a full and final settlement IVA. The amount your creditors will accept as a percentage of your debt depends on your financial circumstances.
If you have no assets and cannot afford any monthly payments to your creditors then the amount they are likely to accept could be relatively low. In these circumstances they may accept a lump sum equivalent to 20 percent or less of your outstanding debt.
Your creditors will consider accepting a relatively small sum because they would get less if you went bankrupt. In bankruptcy any funds would be swallowed in Official receiver’s fees and they could get nothing.
Your creditors might accept a relatively small percentage of your debt if the lump sum is coming from a third party. Cash from a third party is only available if creditors accept the IVA. It would not be available if you went bankrupt.
Where can the lump sum come from to achieve a Full and Final Settlement IVA?
There are a number of ways a lump sum for a full and final settlement IVA can be made available. One option is for a friend or family member to give or lend you the money.
Alternatively if you have recently received a windfall you could use this to make your proposal. Money that has been received from a redundancy or compensation claim payment are common sources.
You may not have to offer all of your redundancy payment to fund a full and final settlement IVA. This would be the case if you need to hold back some funds to pay for your ongoing living expenses.
If you are a home owner you could release equity from your property to fund the Arrangement. Of course this will depend on the amount of equity available in your home and your ability to maintain the higher mortgage payments.
When does the lump sum for a full and final IVA have to be paid?
The lump sum required for a full and final settlement IVA does not have to be paid immediately. The Arrangement can be put in place but the cash handed over at a later date.
The benefit of this is that you get protection from your creditors while you wait for your lump sum to become available. This could be invaluable if you need time to raise the cash by remortgaging or selling a property.
Normally evidence will have to be provided that the money can be made available. In addition a deadline will be set by which time it must have been handed over.
Until the lump sum is paid you may be required to make monthly payments into your IVA if you can afford to. However these payments would cease after the cash is handed over. The argument is that these funds are then required to repay the lump sum that you have borrowed.
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