Have you ever heard of something called a “lump sum” IVA?

If you’re concerned that a regular IVA may be too demanding for you, a lump sum IVA  with lump sum payment may just be right for you.

We’ve compiled a guide to help you understand everything you need to know about this particular kind of IVA and a lump sum payment.

Let’s get right into it.

What is Lump Sum IVA?

To put it simply, this is a special type of IVA that allows you to repay your debts not as monthly instalments, but as a large sum of money that you’ll only have to pay once, as a lump sum payment. This payment will be a full and final settlement.

As you can observe, it differs from a regular IVA in the sense that a normal IVA requires you to make fixed monthly payments to your creditors over a period of five to six years.

A lump sum payment IVA, on the other hand, is active for a much shorter duration, usually somewhere around a year or so. 

There are a few requirements that you have to fulfill as you’re applying for this kind of IVA.

One is that the amount you agree to pay as the one-off sum must be at least 25% of your existing debt under the IVA.

As for how you’ll be able to get access to a sum of money large enough to afford this IVA, well, most applicants for this type of IVA usually get money through a remortgage, inheritance money, or a big payday that you can translate into a lump sum payment.

How Does It Work? 

To qualify for this type of IVA, there are a few conditions you’ll have to meet. Let me share all the information you need to know.

For one, you’ll have to provide that you have little to no income that you can use to contribute towards monthly payments. That way, you can prove that a regular IVA won’t be right for you and it’ll be an unreasonable investment for your creditor as well.

Secondly, you should either have a third party that is willing to pay the amount of debt you owe as a single sum, or you should have equity from a property of yours.

Once you meet these conditions, a lot of technical baggage that may come between you and an IVA of this sort is eliminated.

The entire process is very similar to how a regular IVA works. The only real difference is that this process is considerably shorter, since it involves a lump sum payment.

The way it works is that a meeting will be arranged between you and your insolvency practitioner. 

Your insolvency practitioner will ask you for a few documents and official certification as proof for certain claims related to your lump sum payment.

Once your practitioner goes through the documentation, an official IVA proposal will be drafted, which will be sent to you and your creditors for your consent and your signature.

Just as a regular IVA, the creditors that you owe 75% of your total debt will have to agree to the terms and conditions of the IVA for it to be considered valid.

The good news, especially if you’re struggling with your finances, is that if the total sum you agree to pay on the IVA is less that the total debt you owe, the remaining debt will be written off once the IVA expires.

Lastly, just as with a regular IVA, creditors and debt collectors can’t pursue you for repayment as long as the IVA is valid.

lump sum iva  information

Pros and Cons of Lump-Sum IVA

AdvantagesDisadvantages
You’ll be bound by the financial constraints of an IVA for a much shorter time than a regular IVA.
You won’t have to worry about coming up with money every month to make monthly payments. You’ll be giving a full and final settlement.
A lump sum IVA may not affect your credit rating as badly as a regular IVA.
If you don’t know what to do with a large amount of money that you’ve recently received, you can pool it into this kind of arrangement.
This arrangement may affect your credit rating just as badly as a regular IVA.
Lump sum IVAs are usually not as flexible as regular IVAs, since they’re much shorter and involve a single payment.

How can You Get a Lump Sum Amount?

This section addresses how and where you can get a lump sum amount from.

There are a few different sources you can look towards when you’re looking to get a large amount of money.

Family and Friends

The first source could be inheritance money from your family, or a large sum of money that you receive because of a family property being sold, or something similar.

Other than that, you could ask your friends to give you or loan you a large sum of money. I wouldn’t recommend this unless there’s no other option you can avail, but it does depend on your circle of friends and what your relationships are like.

Direct Lending

Direct lending is a procedure where creditors loan you without the involvement of third parties, such as brokers, who usually keep a percentage of the money.

You may also want to look at borrowers who are authorised and regulated by the financial conduct authority (FCA), since specialize in giving loans to people regardless of their previous debt, their current debt, or bad credit.

If you want a very large sum, you’ll have to opt for direct lending.

This may be a good idea if you implement it the right way. For instance, if you’re borrowing the money and using it for this type of IVA in order to save your credit file from worsening, it’s a good option.

Matured Insurance 

Matured insurance is insurance that has “matured”, as in the total sum can now be given to the insured person.

If you have an insurance that has matured, you can claim it and you’ll probably get a large amount of money that you can then pour into your IVA. 

How Long Does It Take to Complete a Lump-sum IVA?

In general, most arrangements of this sort usually last anywhere from six months to a year. When it expires and you still have outstanding debt, that debt will be written off and you will no longer have to make any payments towards it.

However, individual variations are not uncommon, and your insolvency practitioner may have to assess a few factors before proposing the amount of time that will fit your situation best.

The most important factor in this regard is when you’re expected to receive a large amount of money for your payments. If you’re about to receive it very soon, you may find that your arrangement can be very brief.

FAQs

Does Lump Sum IVA Improve my Credit Score?

Since you’re not bound by the financial constraints of bankruptcy or regular IVAs, you can get around to improving your credit score much quicker than usual. Just make responsible payments and act in a financially mature way.

Also, it won’t hurt your credit score as much as an arrangement that remains active for five to six years.

Will Creditors Agree to a Lump Sum payment?

It’s certainly a possibility, given that they won’t have to wait for multiple small monthly payments.

If you manage to convince creditors that you’re incapable of making regular monthly payments over a period of five to six years, and that you have a lump sum coming in that can cover at least a portion of your debt, they may be inclined to consider the idea.

Remember that most creditors will agree to this agreement rather than the alternative, which, in a lot of cases, may just be bankruptcy.

If you convince them the right way and give them the right information, they’ll listen.

Do I need an IP for Lump Sum IVA?

Yes, just like a regular IVA, you will need an insolvency practitioner as a third party for this arrangement.

Your practitioner’s role will vary from authenticating your documents, to advising you in matters of financial importance and providing relevant information, to convincing your creditors to agree to the terms and conditions of your IVA.

In general, your IP is a licensed third party official who is looking to help you get out of debt as fast as possible, so it’s a good idea to trust them in this regard.

Does Lump Sum Individual Voluntary Arrangement really work?

Yes.

It is one of the most popular forms of IVA out there, largely because you’re not bound by the constraints of an IVA for five to six years.

Also, if you’re at a point where you’re not financially secure, you may be very concerned about how you’re going to maintain a consistent stream of income that allows you to keep making repayments for a period of five to six years.

Final Thoughts

A lump-sum IVA can pose advantages and disadvantages depending on what your circumstances are and where you’re getting a big sum of money from.

This guide explored the various facets of such a situation and provided information on how you may respond to each of them.

If you need any more debt advice or information, feel free to reach out!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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