You need to understand how long your IVA will last. It depends on whether you make monthly payments or pay a lump sum.
Included in this article:
- How long does an monthly payment IVA last?
- Can a Creditor extend the length?
- What if you are a Home Owner?
- Is it possible to pay an IVA early?
How long does a monthly payment IVA last?
There is no legally prescribed time for an IVA to last. It is left to the individual debtor and creditors to decide. Having said that 5 years has become a commonly accepted standard for a monthly payment agreement.
This period remains fixed unless your ability to pay changes. If your finances become worse and you need to reduce your payments the length of the Arrangement can be extended to compensate.
Paying monthly is not the only way to carry out an IVA. It is also possible to offer a one off cash sum to settle your debts straight away. The Lump Sum Payment option is often used if no disposable income is available.
A Lump Sum Payment IVA is completed as soon as the agreed cash sum is paid. Any remaining unsecured debt is then written off.
Can your Creditors extend the length of your IVA?
The majority of high street creditors have come to accept that 5 years is the standard length of an IVA. However there are instances where they can demand that the agreement lasts for a longer period.
It is possible that your creditors could demand that the length is extended to 6 years. This is often the case where the proposed monthly payment is relatively low.
There are rare occasions where a creditor might request an even longer IVA. One example of this is NRAM (formally known as Northern Rock) together loans. The original loan was taken as part of a mortgage and repayable over 10 year plus. As such they are reluctant to settle for payments of just 5.
If one of your creditors demands your IVA lasts longer than 5 years you can refuse and withdraw your offer. However you will then have to chose a different debt solution.
What if you are a Home Owner or take a Payment Break?
If you are a home owner you will have to agree to try and release equity from your property to increase the amount you pay to your creditors. This normally takes place in the 5th year of the Arrangement.
There may be equity in your home. However if for any reason you are unable to release any of it the length of your IVA will be extended for a further 12 months to compensate.
It is possible that you will have a financial emergency during your IVA. If this happens you can agree a payment break of up to 9 months. However any payments you miss will have to be added at the end thus extending the length of your agreement.
If your IVA is extended because you take a payment break the amount you pay overall should remain the same. However it is paid over a longer period of time.
Is it possible to pay an IVA early?
It is possible to settle an IVA early after it has started. This is achieved by paying a cash lump sum instead of the remaining payments. The agreement is then completed straight away.
Paying early can normally be carried out at any time during the agreement. Generally speaking you will need to offer an amount equivalent to the total of your outstanding payments (although in some circumstances you might be able to offer slightly less).
The cash must come from a third party. It is not normally possible to use a windfall you have received personally. This would have to be paid into your IVA in addition to your ongoing payments.
Your IVA will not be paid any faster if you increase your monthly payment. If your circumstances improve and your payments increase you will simply pay back a larger amount of your debts.