It is possible to settle your IVA early by paying a cash lump sum instead of your remaining monthly payments.
Jump to article contents:
- Why settle your IVA early?
- How to settle your Arrangement early
- The amount that will have to be paid
- Remortgaging to raise the required funds
- Using your Pension to settle an IVA
Why settle your IVA early?
There are a number reasons you might want to settle your IVA early. If your circumstances have changed you may no longer able to afford ongoing monthly payments.
Alternatively you may simply want early release from the restrictions of the Arrangement. Once it is settled you can keep any extra money you earn and most windfalls you subsequently receive.
You can also start repairing your credit file and consider getting a mortgage. Having said that the longer you are prepared to wait the more mortgage options are likely to be available to you.
Early settlement will not necessarily make it easier to get a mortgage. Lenders generally focus on the time since the Arrangement started.
How to Settle your IVA Early
An IVA is settled early by paying a single cash lump sum into the Arrangement instead of the remaining monthly payments. The offer has to be made by your Insolvency Practitioner.
You will first need to discuss the amount you can pay with your IVA Company. If they feel it is likely to be accepted they will propose it to your creditors. This is known as a Variation.
For the Variation to be agreed at least 75% by value of the creditors who respond must say yes. This is the same requirement as when the Arrangement was originally set up.
It normally takes 6-8 weeks to agree an early settlement of your IVA. Your Completion Certificate should then be issued.
The Amount that will have to be paid to Settle your IVA early
If your circumstances have not changed the amount offered to settle your IVA early will need to be similar to the sum of your outstanding payments. In other words if you are paying £200/mth and have 18 months to go you will have to offer around £3,600 (£200 x 18).
It might be possible to offer a slightly lower amount. Perhaps 10% less than you would have otherwise paid. However your creditors are unlikely to accept much less than this unless your circumstances have changed and the arrangement is at risk of failure.
The source of the funds required to settle the Arrangement must normally be a third party. For example your partner or spouse. If you have recently received a windfall this money cannot be used. It will have to be paid into your IVA regardless.
The money required to settle your IVA usually has to come from a third party although it may be possible to use a redundancy payment you have received.
Remortgaging your Property to raise funds to settle an IVA
If you are a home owner one option available for raising funds to settle your IVA early is equity release. This can be achieved by remortgaging your property or with a secured loan.
There are remortgage options available if the purpose is specifically for early settlement. Access to these will depend on the amount of equity in your home and the length of time since your IVA started.
If you are not a home owner or you have no equity in your property you could borrow the lump sum you need from a friend or family member.
Releasing equity from your property to pay off your IVA is possible. You could raise up to 95% of its value for this purpose.
Using your Pension to settle an IVA
If you reach the age of 55 during your IVA you may be able to withdraw cash from your pension. This source of funds can be used to settle the Arrangement.
Withdrawing cash specifically for this purpose is not considered a windfall. This is because you are not obliged to draw money from your pension as part of the standard Arrangement obligations.
If the amount you offer is rejected by your creditors you have the option of increasing it. Alternatively you could withdraw the proposal and continuing with your normal monthly payments.
Do not draw money from your pension before you have agreed it will be used to settle your IVA early. Funds drawn without prior agreement are a windfall and must be paid into the Arrangement.