Rather than making monthly payments, it is possible to do a single cash lump sum IVA. Also known as a full and final settlement, this option can be used to settle an existing monthly payment IVA early as well.
Included in this article:
- What is the advantage of a lump sum IVA?
- How much do you have to pay to get a lump sum IVA?
- Where can you get the required money?
- Can you settle your monthly payment IVA early with a lump sum?
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What is the advantage of a lump sum IVA?
Rather than making monthly payments for 5 years, you can pay a lump sum IVA in one go. Once the cash sum is paid, the Arrangement is completed straight away.
There are some significant advantages of doing this over a traditional type of agreement.
First and most obviously, there is no need to make monthly payments. As such, it makes the solution available to people who can’t afford to pay anything each month.
Secondly, a 5 year monthly payment IVA can be very restrictive. You have to do annual reviews and declare pay rises and overtime. You have to hand over windfalls.
A lump sum IVA means you are not tied into these restrictions. All future pay increases and windfalls are yours to keep. You can also start to rebuild your credit rating and it becomes easier to get things like car finance.
In reality, from the date the cash is paid, it normally takes 3-6 months for full completion of a lump sum IVA and to get your completion certificate.
How much do you have to pay to get a lump sum IVA?
The starting point for calculating the amount required for a successful lump sum IVA is to work out your surplus income. This is the amount you would have to pay if you were doing monthly payments.
Once you have calculated your surplus income, you multiply this by 60 (the equivalent to 60 months payments). The total is the amount you would need to offer.
That said, in most cases there is a minimum lump sum required of £8000. So the amount you pay would need to be at least £8000 or the total of your surplus income x 60, which ever is the larger.
Funds generally need to be made available straight away. However if it is going to take time to get the money, it might be possible to get the IVA in place (and the protection from your creditors) but then pay the lump sum at an agreed later date.
If you have surplus income you would normally have to pay this into the Arrangement until the lump sum is available.
The actual lump sum amount your creditors agree to accept will vary depending on your situation. Things like the amount of debt you owe and whether you are a home owner with equity in your property will have an effect.
Where can you get the required money?
The money to achieve a lump sum can either come from your own funds or a third party.
You may have the required cash yourself. Perhaps you have recently lost your job and have received a redundancy payment. Alternatively you may be able to draw a lump sum from your pension or release equity from your property.
Where you can’t raise any funds personally, the money can come from a friend or family member. They can either gift it to you or you can agree to repay them in the future.
If the cash you require is coming from a third party, they will be asked to prove their identity in accordance to UK money laundering rules.
They are likely to have to provide a copy of their passport or driving license. They will also need to show a copy of a recent bank statement to show the funds are coming from a legitimate source.
Can you settle your monthly payment IVA early with a lump sum?
If you are already in a monthly payment IVA, it is possible to settle the agreement early with a cash lump sum. However, to achieve this, you are more restricted in terms of where the money can come from.
It can’t be cash that your creditors would otherwise be entitled to. So for example, you are unlikely to be able to use a windfall such as inheritance or a compensation payment. This is because these types of funds would usually have to be paid into your IVA anyway over and above your normal payments.
You could however use equity released from your property or draw a lump sum from your pension. Alternatively a third part (family or friend) could agree to lend you the money required.
It is critical to agree the settlement amount and process with your IVA company and to get understanding in writing before raising any funds. Were you to do so before you have such an agreement, your cash could be claimed as a windfall and you would lose it.
Want more advice about a lump sum IVA? Call us (0800 077 6180) or complete the form below. Its free and confidential.
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