Full and Final IVA Settlement
Whether you are setting up an IVA agreement or are in the midst of a repayment plan, if you gain access to a large sum of money that covers most of your debt you can use this to pay your creditors. This is a called a full and final IVA.
What is a full and final IVA?
A full and final IVA is where you make a one off payment to your creditors in order to repay your debts. It is normally suggested for those who have a sum of money readily available to pay towards your remaining unsecured debts. The full and final amount doesn’t need to match the overall outstanding debt total, but in order for it to be considered by your creditors it needs to cover a reasonable proportion of your debt total. A full and final IVA can be advantageous to the creditor as well as yourself because they will receive a repayment a lot quicker than they were initially expecting.
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How does it work?
If you become aware you will be coming into some money you will need to talk to a debt management company. They will advise you whether the money you have is enough to be considered by your creditors and they will help you put together the proposal for your full and final IVA.
If you do put forward a lump sum IVA, your creditors in question will review your proposal and will consider the financial return from bankruptcy and that of the suggested IVA payment.
If the single payment offers a better financial return, they may approve your full and final IVA. The lump sum payment will then be paid into your IVA, to clear your IVA in full, allowing you to reduce the amount of time it has taken to pay back your debts. It is important to remember however that just because your IVA has been completed and will be removed from the Insolvency Register, it will still appear on your credit file for six years from the date your original IVA was approved.
The amount you can offer lenders doesn’t necessarily need to be the full amount owed. If you are not currently in an IVA but are thinking of a full and final IVA settlement, we suggest you make the best offer you can to your creditors – this gives your IVA the best chance of being accepted. If you are already in an IVA and thinking about offering a lump sum you should talk to your Supervisor.
It’s important to note, however, that such a proposal still requires the approval of at least 75% of your creditors who vote on your IVA, and many creditors may be reluctant to accept a proposal early on within an IVA agreement.
If you are considering an IVA full and final settlement, it’s also important to note that creditors can put forward modifications asking you to also make monthly payments into your IVA. You will also need to provide proof of the funds that you intend to use. This proof will need to be supplied on top of your other documentation, required for your IVA proposals.
What type of funds can I use?
There could be any number of reasons for your newly found funds, perhaps you have come into some inheritance, received money from a friend or family member or have been made redundant and qualified for redundancy pay. The sale of assets, as well as releasing equity from your home, are common ways of funding a full and final IVA settlement, as well as using gifts from family or friends.
You can hold on to a certain amount of your funds for yourself and offer the rest to creditors to clear debts if the funds being used have come from a redundancy payout, to ensure you are still able to cover the costs of bills and other expenses.
However, it’s important to note that you should offer a substantial amount of this money because creditors may request the full amount to agree the settlement if they know there is more available. Alternatively, if you have substantial equity in your property they may ask for this to be included as well.
When should I consider a full and final IVA?
This decision could be based on a number of factors, but people most commonly decide to go ahead with a full and final IVA for the following reasons:
- Retirement – No one wants to retire with hefty debts over their heads and therefore settling on an IVA with a single payment is a good way of ensuring they can start again credit wise once they leave employment.
- Emigration – If you are planning on leaving the country to live abroad it’s always a good idea to tie up all debts at home and this type of settlement could work in your favour.
- Redundancy – Being made redundant is tough at the best of times but being made redundant with an IVA in place and debts to clear is less than ideal. Which is why many people who receive a lump sum from their former employer will use this to propose a full and final IVA.
Full and final IVAs are ideal for people who have access to a sum of money but won’t have the income to set up a repayment plan. They work favorably for everyone involved, it allows those in debt to reduce the time they spend paying money to creditors and it works to the creditors’ advantage too, simply because they receive their money sooner.
If you need more advice when it comes to a full and final IVA settlement, then don’t hesitate to get in touch with one of our knowledgeable debt advisers who are available via phone or email. We offer free advice on a number of debt management services to ensure you can get your financial situation back on track and enjoying life again.
Examples of full and final IVAs
To help you understand how a full and final IVA settlement might work, we have gathered some real life examples from our clients.
Your own funds for the settlement
We helped a factory worker who owed over £15,000 on loans, store cards and ‘payday loans’. He was paid a low wage and after taking into account his living costs, was unable to afford a monthly payment to his debts.
However, he had just received compensation of £5,000 following a successful claim relating to a mis-sold Payment Protection Insurance policy held with one of his creditors.
We recommended an IVA as the best debt solution for our customer. We then referred him to our associated company, PayPlan Partnership Limited who set up an IVA where he paid £5,000 of his compensation into his IVA in full and final settlement of his total unsecured debt. The IVA was completed within six months, with creditors agreeing to write off the remaining balance.
His IVA did not last five years as he was unable to make a monthly payment towards his debts, and instead he was debt-free within just six months.
Funds from a third party for the settlement
We helped a bus driver who owed over £30,000 on unsecured loans and credit cards. He owned his own home where he lived with his wife and three children. After taking into account his living costs, he was able to afford £100 a month as a reduced monthly payment towards his debts.
When we discussed his debt solution options, he mentioned that he had a friend who was willing to offer £10,000 in full and final settlement of his unsecured debts.
We set up and completed an IVA for him where his friend paid the £10,000 into his IVA. This particular IVA was completed in an extraordinarily short period of time (six months), with creditors agreeing to write off £20,000 of his debt.
He therefore avoided bankruptcy which would probably have affected his property and was debt-free within just six months. His IVA did not need to last five years as his friend only offered the £10,000 on the condition that this amount was accepted in full and final settlement of his unsecured debts.
*In the case of a one-off lump sum settlement