An Individual Voluntary Arrangement (IVA) often consists of making 60 monthly payments to your creditors. However the Agreement does not necessarily have to be structured that way. It can also be based around a single lump sum payment to creditors.

Understandably raising the required lump sum can take some time particularly if it has to be released from equity in a property. However as long as you are sure the money will be made available you could start an IVA straight away on the understanding is that it will be paid using the lump sum when you have it.

In this way you gain legal protection from your creditors immediately while you are raising the money you need.

IVA gives protection from creditor action

Implementing a lump sum IVA will give you immediate protection from your creditors. They will not be able to take any further action against you or your property (for example applying for charging orders) and no further interest or charges can be added to your balances.

Of course, the lump sum does eventually have to be paid and generally this would have to be within a set period of between 6 to12 months. If the sum cannot be raised within this time the Arrangement may be at risk of failure and you could then be forced to declare bankruptcy.

For this reason you should not start a lump sum settlement IVA in this way unless you are sure the lump sum you require can be made available.

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Using an IVA to pay 100% of your debt

Generally speaking if you have more equity in your property than the total of your unsecured debt, you would not consider carrying out an IVA as you would be able to pay off your debts simply by releasing equity.

However, there are circumstances where you would still choose to do so.  A specific example of this is where you are perhaps looking to sell your house to pay your debt.

This process could well take time during which your creditors will continue to chase you for payment of their debt and may take further action such as applying for a charging order against your property.

If you put in place a lump sum IVA you will be legally protected from your creditors and in addition they will no longer be able to add interest or charges to your accounts so the balances will stop going up.

BMD Tip: Since this article was written it has become acceptable to propose an IVA to your creditors if the amount of equity in your property is greater than the total amount of your unsecured debt. This is because your creditors recognise that it may be very difficult to be able to release any equity by re-mortgaging.

Understand your options

If you are looking to raise a lump sum to settle your debt or even pay it off in full, you can do this without the need to implement an IVA.

However, if you feel it is going to take a while to access the funds you require a lump sum option could be an ideal solution offering you protection from your creditors while you get the money together.

Of course before you apply you need to be sure that the funds will be available in a reasonable time scale.

As such, if you are planning on releasing equity from a property, it will be necessary for you to get a mortgage offer before starting the process. If you have agreed to sell your house, then having a good understanding of the potential selling price will be required.