Settle your IVA early

13/09/2017
Settle your IVA early

It is possible to settle your IVA early by paying a cash lump sum instead of your remaining monthly payments.

  • Why settle your IVA early?
  • How to settle your Arrangement early
  • The amount you have to pay
  • Remortgaging to raise the required funds
  • Using your Pension to settle an IVA

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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. You should receive your Completion Certificate shortly after the lump sum is handed over.

The Amount you have to pay 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 give you much more of a discount. If your offer is too low they will simply reject it in favour of collect the full amount over the original timescales.

Where you can no longer afford monthly payments after a change in circumstances a significantly lower amount might be acceptable.

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.

A cash windfall you have received cannot normally be used to settle an IVA. It would have to be paid into the Arrangement. The exception is the use of redundancy money if ongoing payments are no longer possible.

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.