Stuck in an Individual Voluntary Arrangement?
One way to get out of the endless monthly payments is to pay your dues in full if you come across some extra money.
Keep on reading if you want to know more about an IVA settlement.
Let’s dive right in!
What is Full and Final IVA Settlement?
An Individual Voluntary Arrangement (IVA) is a debt settlement option. In such an arrangement, the monthly payments on your debts are handled by insolvency practitioners. Your creditors may only get in touch with your insolvency practitioner for your debt settlements.
An IVA full and final settlement is when you pay a lump sum amount of money at once instead of your monthly payments. This way your IVA ends earlier than 5 years and all your debt is cleared.
When to Make a Full and Final IVA settlement?
You can make a full and final IVA settlement if you’ve come across a large amount of money unexpectedly. This money can be in the form of a lottery win, equity or some inheritance that comes your way.
This money can then be used for your full and final IVA settlement and to end your debt to your creditors once and for all.
Usually, when you pay your creditors a lump sum amount of money at once, they even write off some amount from your loan.
People usually go for this settlement debt option when they have a lump sum amount of money but their monthly income is low. This way it becomes inconvenient to pay your creditors small monthly payments for such a long period.
Keep in mind that you should definitely get debt advice from a professional before taking this step as Individual Voluntary Arrangements can be complicated to deal with.
How Does It Work?
A full and final settlement can be offered as part of your initial IVA proposal to your creditors or at any point during your IVA. If you come across a big sum of money, you can end your debt by making a higher payment to your creditors at once, instead of several small ones.
The first thing you need to do is call your debt management company for advice on this. They will tell you whether or not the money you have put forward is enough for settling your IVA. If they approve it, a proposal is made to your creditors to settle your IVA.
Your creditors will usually see if the financial return they’re getting is equivalent to the money they can potentially get by making you bankrupt. From thereon, they will decide whether or not they want to accept your payment.
You will probably get a full and final settlement letter as well for written proof of the settlement of your debt.
Keep in mind that the IVA appears on your credit report and will not be cleared from there until 6 years have passed since your IVA was announced. Full and final settlement if your IVA does not mean that it will disappear from your credit report.
Pros and Cons of Full and Final Settlement
The pros of a settlement are pretty obvious. You will be debt free and can make a fresh start without any financial pressure. Moreover, your credit report and credit rating will also begin to improve.
The con is that it is very hard to come up with a huge amount of money that can end all your debt in one payment. This applies especially if you have multiple creditors that you have to pay off.
Also, your creditors will probably demand the entire amount of your debt as settlement.
If you continue with your IVA plan, you might end up paying lesser money as your creditors might be willing to right off some of your debt due to the circumstances you’re in; but if you come up with a lump sum amount of money, your creditors might want all of their money back.
However, it can also be the other way round.
This is why it is important to get professional debt advice before making any offers and proposals so that you don’t accidentally make your situation worse.
How Much does It Cost?
An IVA settlement is done by first proposing an adequate amount to your lenders. If your creditors think that this amount is sufficient to clear your dues, they will accept your settlement and you will only have to pay the fees of the insolvency practitioner in addition to your settlement.
How Can You Gather the Finances?
There are a number of ways to gather the finances for full and final IVA settlement.
You can personally finance your IVA. However this can usually only be done if a windfall of money comes up or if you inherit something. Another event that can probably boost your finances is if you sell some pre-owned equity to pay your IVA.
Third Party Finance Options
You can also get financed through charity money. You can try online fundraising websites to attempt to finance your IVA. However, to avail this option, you must have a valid and compelling reason otherwise people would be reluctant to fund you.
Sale of Assets
Another way to pay your IVA is to sell your assets – if you have any. You can sell your car or some property in your name to fund your agreement. Other than that, you can also try shifting into a smaller house and paying that money to your IVA.
This option usually isn’t convenient for everybody as you have a constant use for your assets (like your car or your house) and can’t afford to sell it. However, if you have big assets under your name sitting and accumulating value, consider selling them to fully pay your IVA.
Frequently Asked Questions (FAQs)
Is Full and Final Settlement in an IVA always beneficial?
Settling your IVA may not always be beneficial for you. Sometimes, your creditors demand more money if you want to settle your debt early.
Your creditors will usually compare this money you’re willing to pay to end your IVA against the money they can potentially get by making you bankrupt and will choose the better of those options.
However, sometimes creditors want their money back at once and you can get away with paying a smaller amount than your original debt just because you’re paying the amount right away instead of over a span of five years.
Does it Cost Less Compared to Monthly repayment of IVA?
Not always. It is hard to say what happens in every case of every IVA repayment. In some cases, it is a lesser amount as compared to the monthly repayment option. In others, your creditor might be willing to accept lesser money if you’re giving a huge amount at once.
What Are the Best Options of Finance for Full and Final Settlement?
The best options for paying your IVA in full are selling your assets or equity in your name. You can also sell family inheritance to finance your IVA.
Does it Improve my Credit Score?
No, your credit score will only improve after 6 years of your initial IVA announcement. Even if you pay your IVA in full, it does not disappear from your credit report till 6 years after the initial announcement.
Settling your debt with your creditors can get tricky, so make sure to make the right decisions with the help of your practitioner or an expert advisor.
Keep reading our articles for free debt advice and feel free to reach out on the given email addresses in case you have any more questions. I’d be happy to help.