You need to understand how long your IVA will last. It depends on whether you make monthly payments or pay a lump sum.
- How long does a standard 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 standard 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 one of 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.
A bank which often requires IVAs to be extended is NRAM (formally known as Northern Rock). They will normally require the Arrangement to last for 6 or 7 years.
Usecured debts owed to NRAM are generally loans which were lent as part of a”Together Mortgage”. The loan was repayable over the same time as the mortgage. As such they are reluctant to settle for payments of just 5 years.
If one of your creditors demands your IVA lasts longer than 5 years you can refuse. However depending on how much you owe them this may mean that the Arranagement is rejected.
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 lenght of your agreement.
If your IVA is extended because you took a payment break the amount you pay overall remains 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 a monthly payment IVA early after it has started. This is acheived by paying a cash lump sum instead of the remaining payments. The agreement is then settled in full.
Paying early using a lump sum can normally be carried out at any time during the agreement. The creditors should accept slightly less than they would otherwise receive if the monthly payments had been made.
The cash sum must come from a third party. It is usually not 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 quicker if you increase your monthly payment. If your circumstances improve your payments may increase. However this simply means the amount you pay will increase overall.