An Individual Voluntary Agreement (IVA) is a formal, legal contract for a set period, usually five or six years.
To finish your IVA sooner and have the remainder of your debts written off, you need to talk to your IVA firm, say how much you are offering and where the money is coming from. Your creditors will need to approve this offer.
How much you should offer as a Full and Final (F&F) settlement depends on your situation and why you want to end your IVA early.
How do you settle an IVA early
This approach is like making a full and final settlement offer on debts outside an IVA, but the procedure is more formal:
- you tell your IVA firm what you want to offer;
- your IVA firm puts your proposal to your creditors as a “variation” to your existing agreement;
- the same offer is made to all your creditors and they vote whether to accept it.
Because these offers take time and require a formal vote, you can’t try offering 40% and then increase it to 50% and then to 75%. You have to assume you can only make one offer, so get it right the first time.
Also remember that your credit record is not going to improve if you settle the IVA early. The IVA marker remains on your credit record for 6 years, during which time you will find it very hard to get a new tenancy, take out credit or get a mortgage.
Get your figures together
The first thing is to work out how much you would pay into your IVA if you carry on making the monthly payments. So, how many months are left until your IVA finishes, times your current payment (or the amount it is likely to go up to if you have just had a big pay rise)?
If you have a house, it is unlikely in the present market that you will be able to remortgage to release equity. If you have the usual “12 month extension” clause in your IVA, you need to either add on the extra months, or convince the creditors that there is unlikely to be enough equity for this to be relevant.
For Example – say you are 28 months into a 5 year IVA, so there are 32 months remaining and you pay £200 a month. You have a house and a 12 month extension clause. If your IVA continues to the end, you will be paying in either 32 x £200 = £6,400 (if there is little equity) or 44 x £200 = £8,800 (if there is a lot of equity).
Case 1 – you are struggling with your IVA payments
If your IVA is in danger of failing, perhaps due to illness, splitting up with your partner or reduced income, then your creditors may be prepared to accept a lower offer to complete your IVA early. In this case, you should stress to your IVA firm that if the offer is not accepted, you are going to be unable to continue with the IVA. Here your creditors have a choice between accepting your IVA settlement offer and the IVA failing.
The creditors will be interested in whether your problems could be temporary and if your IVA could realistically continue. Evidence of the mitigating circumstances may help get your offer accepted – a letter from your doctor or a hospital appointment letter, copy of recent payslips etc. A recent estate agent’s valuation showing there is little or no equity in your house can also clarify the position.
With these mitigating circumstances, your creditors may agree to accept a lower full and final settlement than your remaining monthly payments.
What might be acceptable depends not just on how much there is still to pay into your IVA – the total amount of your debts is also relevant. If your IVA was only offering a low return to your creditors, then they may be reluctant to agree to this being reduced much.
NB If you are close to the end of your IVA and you lose your job or have a major health problem, it may be possible to get your creditors to agree to your IVA being completed without you making any additional payments at all.
This is called “completing your IVA on the basis of payments made to date“. Talk to your IVA firm about this if you think it could apply to you..
Case 2 – you just want the IVA ended
If you aren’t struggling, you probably have to offer close to the total of the remaining IVA payments.
Here the reasons why you want to end the agreement early don’t really matter – you may want to emigrate, retrain for a different career, move in with a new partner or just be sick of the whole thing and want to start with a clean slate.
But from your creditors’ point of view this is all pretty irrelevant: they simply have to choose between taking your offer of £x,000 now or you carrying on with the monthly payments.
So on the example given above, they would be unlikely to accept £3,000, may be prepared to take £5,000 immediately and would be very likely to accept £6,000. If there was some equity in your house, then you would probably have to offer more to get it accepted.
Case 3 – you have a windfall payment you can use
Lump sums need to be discussed with your IVA firm. There is normally a clause in your IVA which means that windfalls over £500 have to be paid into your IVA.
Here you don’t have a choice. This isn’t an early settlement offer because the money has to go into your IVA:
- when the amount that will be paid into your IVA is more than the total of the debts in the IVA plus the IVA fees plus statutory interest on the debts, your IVA will be completed early.
- if it isn’t large enough for that, your creditors will expect you to carry on with the normal monthly payments.
More unusually, sometimes a windfall payment doesn’t have to be paid into your IVA – this could, for example, be compensation for a personal injury. Here it is your choice what you want to do with it, so you can make an offer to settle the IVA early if you want. Or you could just let your IVA continue and keep the money.
Or it could be your partner who is getting the lump sum – that doesn’t have to go into your IVA. You could just carry on making the normal payments or you could offer to settle the IVA early, probably having to pay close to the remaining monthly payments as in Case 2.
Case 4 – your IVA firms suggests you take a loan
If you are more than halfway through your IVA you may get an email from your IVA firm saying you may be able to get an “early exit loan”. You need to think carefully about this offer, as the loan may be expensive (eg about 30% interest) and it prolongs the time you are in debt.
See IVA early exit loans for details, including the alternative, cheaper ways of improving your credit record after an IVA.
IVA settlements are unpredictable
It’s impossible to say for certain whether your creditors will accept an offer. Someone with a lot of experience will sometimes have been astonished when a good offer was refused. Other times they will have seen surprisingly low offers agreed.
If you don’t mind putting details of your situation on the internet, then the forum at www.iva.co.uk can help. You can post anonymously and get replies from people who work for IVA firms or who have had an IVA.
Where is the money coming from?
Your IVA firm will want to see evidence about the source of the money you are putting forward. It won’t matter if this is coming from a relative or a friend.
The person offering the money should write a letter saying they are prepared to offer your £x,000 if this will enable you to complete your IVA. They should say this is a gift, not a loan. It should also give a timescale e.g. “This offer will remain open until dd/mm/yy. I will be able to make the payment within x weeks of being informed that my offer has been accepted.”
Your IVA firm may ask for evidence about the identity of the donor, perhaps a copy of their passport or driving licence, and proof that they have the money, such as a copy of a bank statement.
If you were just given £5,000 by your dad as a generous Christmas present, then you could pay this into your IVA and still carry on with the normal monthly payments. So it’s important to say you will only get this lump sum if your proposal to settle the IVA early is accepted.
Be careful! And check the details!
There are two situations where you have to be very careful and get the settlement agreed first:
- you must NOT take any money out of your pension until you have confirmation that your creditors have accepted your offer. If you take it out before this, it could be claimed as a windfall payment and you would still have to carry on with the IVA! See IVAs and Pensions for more information.
- if the money is going to come from selling your house, make sure you read Sell my house to end my IVA early. You need to get the settlement amount agreed BEFORE you start to sell your house.
If your IVA firm agrees to put forward your proposal, you should make sure you know the exact details of what is being proposed.
Ask about things you feel could be relevant to your situation. What about potential refunds from PPI or other complaints? What will happen if I get a redundancy payment or inherit money before my completion certificate arrives?
What if the offer is refused?
If your creditors reject the proposal, you have to carry on with the normal monthly payments.
You could talk to your IVA firm about whether a higher IVA settlement offer might be acceptable now. Or if you could make the same offer in another six months or a year, which will give your creditors more money as they will have had the additional payments.
If you simply can’t carry on with the payments, then it may be that your IVA has to fail.
Unfortunately, this will often happen if you are having big problems early in an IVA and it’s not possible to offer a large enough full and final settlement, see What Happens if You Can’t Afford IVA Payments.
“My IVA firm won’t put my F&F offer to my creditors”
If you only have a few months to go, it’s not worth doing this. It usually takes 2-3 months to get it all organised and approved by your creditors. If you are near the end, your IVA firm just saying it’s simpler to make the remaining payments.
Make sure you have set out in writing exactly what you are proposing and why. If your IVA firm says it can’t be done or the offer isn’t enough, ask them to explain why. Insist on having this in writing.
If you think your offer is a sensible one and your firm is being unreasonable, put in a formal complaint.