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. How much you should propose as an early settlement depends on your situation and why you are making the offer. This article looks at three broad cases and other aspects of IVA settlements to consider.
UPDATE August 2016 I have now added a fourth case because Creditfix are suggesting to some clients that they take a loan to end their IVA early.
This is similar to a full and final settlement offer on debts outside an IVA, but the procedure is different: you communicate with your IVA firm and they have to put your proposal to your creditors; the same offer has to be made to all your creditors; and if a majority of them agree to accept it, it is binding on all the creditors.
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.
Example – 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, but there is little or no equity at present. If your IVA is not settled early, your creditors will expect you to pay in either 32 x £200 = £6,400 or 44 x £200 = £8,800, with £6,400 seeming more likely.
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. 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 copy of hospital appointments, copy of recent payslips etc. An 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 further.
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. Talk to your IVA firm about this.
Case 2 – you just want the IVA ended and someone offers you money to do this
With none of the mitigating circumstances in Case 1, you are likely to 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. 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 will very often be a clause in your IVA which means that some or all of it has to be paid into your IVA. In this case if the amount that will be paid in exceeds the total of your debts that are included in the IVA plus the IVA fees plus statutory interest on the debts, then 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.
If you have a windfall payment which doesn’t have to be paid into your IVA – this could for example be some form of legal compensation – then it is your choice what you want to do with it. 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 half way through your IVA you may get an email from your IVA firm saying you may be able to get an “early exit loan”. Creditfix started suggesting this to its clients in July 2016. You need to think carefully about this offer, as the loan is expensive (29.4%) and it prolongs the time you are in debt. See Is a Perinta loan a good idea? for details, including the alternative, cheaper ways of improving your credit record after an IVA.
IVA settlements are unpredictable
If you talk to someone at your IVA firm who has a lot of experience with full and final offers, they will probably tell you that it’s impossible to say for certain – or even likely! – whether your creditors will accept a low offer. Sometimes they will 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 and possible offer on the internet, then the forums at www.iva.co.uk are a good place to go. There you can post anonymously and get replies from people who work for IVA firms or who have had an IVA themselves.
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. They should write a letter saying they are prepared to offer your £x,000 if this will enable you to complete your IVA, and that this is a gift not a loan. It should also giving 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 being accepted.” Your IVA firm may also ask for evidence about the identity of the donor, perhaps a copy of their passport or driving license, and proof that they have the money, such as a copy of a bank statement.
Your creditors will want this because if you were just being given £5,000 by your dad as a generous Christmas present say, then you could pay this into your IVA and still carry on with the normal monthly payments. So it’s important that they know that you will only be able to get this lump sum if they agree to settle the IVA early.
If you are planning on taking money from your pension, you must NOT take the money out 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.
Check the details!
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 any of the following that you feel could be relevant to your situation: what about potential PPI payments? 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, then your obligation to carry on with the normal monthly payments continues. 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”
Make sure you have set out in writing exactly what you are proposing and why. If your IVA firm appears to be ignoring this or you are being told it can’t be done or the offer isn’t enough, ask for a reply in writing explaining why they will not put your settlement offer proposal to your creditors. If you think your offer is a sensible one and your firm isbeing unreasonable, put in a formal complaint.