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 is how it works:
- 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, some firms charge for doing this;
- the same offer is made to all your creditors and they vote whether to accept it.
These offers take time – often a couple of months.
5 situations NOT to make an offer
You may hate the IVA, wish you had never started it, be desperate for it to end… but there are some situations in which an early settlement is not your best option.
When you are in the last year
The closer you are to the end of the IVA, the less point there is in settling it early. It can be a lot less stressful to simply sit back and make those last 7 payments.
When you mainly want the IVA off your credit record
This doesn’t happen after an early settlement – your credit score will not improve. The IVA marker remains on your credit record for 6 years from the start. Settling it early will not make it easier to get a new tenancy or a mortgage in most cases.
When the IVA payments are too high to be affordable
Here you should be to get the payments reduced – see Help with IVAs if you can’t pay because of the cost of living. So talk to your IVA firm. Do this first – then IVA may be manageable and if you still want to settle it, it may cost less.
When you can’t afford to make any IVA payments
There are two other options that could be better for you here.
The first is to ask the IVA firm to propose to your creditors that your IVA should be completed now, not failed, “on the basis of the funds paid to date”. See this which looks at when this is a reasonable thing to ask for.
The second is to let the IVA fail and opt for another form of insolvency – a Debt Relief Order or bankruptcy. Here your debts are cleared and the money you are being offered by a relative could help you have an easier next few years. if you have other debts outside the IVA, this will also get those wiped as well.
When you have other debts outside the IVA
It may be that you are getting behind with the energy bills, rent or council tax because of the IVA payments. Here it would be better to get your IVA payments reduced and any money from a relative could be better used to clear these other important debts.
First look at what you are likely to pay at the current rate
You can’t try offering 40% and then increase it to 50% and then to 75%. Assume you can only make one offer, so get it right the first time.
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? If you have a house with equity, add on the 12 months that your IVA is likely to be extended for.
Then multiply your current IVA payments by that number of months.
For Example – say you are 28 months into a 5 year IVA, so there are 32 months remaining and you pay £200 a month. If you don’t have a house with more than 15% equity you will be paying in either 32 x £200 = £6,400. With equity in your house you can expect to be paying 44 x £200 = £8,800.
Then consider if you have a good reason to offer less than this
Case 1 – you are struggling with your IVA payments
In 2022 this will often be because energy bills, petrol and other prices have risen a lot. But it could be due to more individual factors such as illness, splitting up with your partner or reduced income.
Here your first thought should be to get your IVA payments reduced, or your IVA completed, see above. But if they won’t work. if your IVA is in danger of failing 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 your settlement offer is not accepted, you are going to be unable to continue with the IVA. So 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 your circumstances may help get your offer accepted:
- a new Income & Expenditure form showing you have very little spare income because of increased bills and prices;
- a letter from your doctor or a hospital appointment letter;
- copy of recent payslips;
- a recent estate agent’s valuation showing there is little or no equity in your house can also clarify the position.
With this evidence, 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 not agree to this being reduced much.
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 and an inheritance 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 firm suggests you take a loan
If you are more than halfway through, your IVA firm may say 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 be suprised when a good offer is refused. Other times surprisingly low offers are agreed.
If you don’t mind putting details of your situation on the internet, then the IVA forum may 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. This could include 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 your IVA firm will want you to 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 when 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.
“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 arguing about 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 is 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.
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. See Your option when an IVA fails for what you can do then.