Paying Off an IVA Early
If your circumstances change or you receive a large windfall while you complete an IVA, you may be wondering if you should settle it early and whether this is actually possible.
We’re happy to confirm that it can be done – and it means you can release yourself from the constraints of an IVA sooner than expected. However, there are some important things to consider before taking on such a solution.
Should I settle my IVA early?
This is a case by case situation and you need to carefully consider whether it is the right choice for you. Here are some things to take into account:
Pros of settling an IVA early
Things to consider
You get to enjoy the freedom of not being constrained by the terms of the IVA and it may be possible to obtain further credit – but only if it is needed.
Even if the IVA is settled it will be listed on your credit report for at least six years from the date it was approved – and so will continue to affect your ability to get credit.
You can start rebuilding your credit score. It will be a slow process but it does mean you may be able to get a head start before the IVA drops off your report entirely.
If your proposal for paying it off early is rejected, it is possible to continue your IVA and make your IVA payments as agreed.
It’s unlikely you will still be able to obtain large amounts of credit, such as a mortgage, straight away even if the IVA is settled.
How do I pay off an IVA early?
You will need to offer your creditors a lump sum as a one off payment, and agree that no more monthly payments are required. They will then accept this as settling the debt and the IVA will be closed.
If you want to pay off your IVA early then you need to first suggest this solution to your IP (insolvency practitioner). If they think it is possible that your creditors will agree to early settlement, they will set up something called a variation meeting. This is arranged when you want to propose a significant change to your IVA arrangement.
Like the original proposal, 75% of your creditors by value who vote on your variation, have to agree to a variation on your IVA before it can go ahead.
You could look into remortgaging your home early to settle an IVA. However, you will usually be asked to try and remortgage six months before your IVA ends anyway, which many people find difficult and why many home-owner IVAs are extended to last six years.
What to consider when paying off an IVA early
There are a number of things to consider before proposing an early settlement to your insolvency practitioner. Here we take a look at what you need to consider and why:
Why do I want to settle my IVA early?
You need a strong reason for paying off an IVA early for your creditors to agree to it. You need to make a reasonable offer to your creditors to persuade them to accept.
Where is the money coming from?
You need to be clear about where this money is coming from. Would creditors be entitled to it anyway, such as in the case of an inheritance? If so, they may be less inclined to accept an early settlement.
Can I afford the repayments, if I borrow money to settle my IVA?
You don’t want to be in a situation where your IVA is completed but you are now unable to repay a new, unaffordable debt.
Your IP needs to be impartial but they may be able to help you understand why your proposal may not work and give their view on whether it’ll be accepted. However, you will need to come to the decision of what to propose as an early payment on your own.
How much money do I need to settle my IVA early?
This depends entirely on how much is left of your arrangement and the debt amount you are paying off.
Your creditors may not give you any more discounts on the amount you owe, so you will need to offer as close to the final amount that you still have to pay, as possible.
For example, if you are paying £250 a month and have 20 months left in your arrangement then you will need to suggest paying £5,000 (£250 x 20) or as close to this as possible. If your creditors do reject your early payment, then you will simply carry on paying your IVA as originally agreed.
If your circumstances have changed – for example, if you lose your job and you are unable to make the minimum monthly repayments on your arrangement – your creditors may accept a smaller lump sum but again this is not guaranteed.
If you are considering paying off your IVA early, the first thing you should do is speak to a member of the team here at PayPlan to discuss further. We are available six days a week via phone or live chat.
*In the case of a one-off lump sum settlement