Considering ending your IVA ahead of time? Before you make any decisions, check out our round-up of the pros and cons of early IVA settlement
How long will an IVA last?
While they can be a great way to manage your debts, it’s important to remember that IVAs aren’t a quick fix. Their exact length will depend on how much you owe and how much you can afford to pay each month, but it’s not uncommon for an IVA to last five or six years. Throughout that time, you’ll be expected to make a fixed payment towards your debt each month. You’ll also need to adhere to the terms and conditions that come with an IVA including spending restrictions that prevent luxury and unnecessary purchases, having limited access to credit, and declaring any additional income you receive.
Can I settle my IVA early?
An IVA will usually be in place for at least five years, but you might be able to apply for an early IVA settlement if you can afford to pay a lump sum towards your debt. This money might be a gift from a friend or family member, an inheritance, a redundancy pay-out, or a work bonus.
If the money was given as a gift, you’re free to use it to settle your IVA as long as the person who gave it to you knows that’s what it’s being used for. Be aware that they might need to provide proof of this. A windfall or inheritance, on the other hand, is considered an asset so may be subject to the rules and regulations of your IVA. Either way, it’s best to let your Insolvency Practitioner know as soon as you receive the extra funds and go from there.
How can I settle my IVA early?
With an early IVA settlement, you’ll typically offer your creditors a lump sum to either clear or cover a large proportion of your debt. It might not be equivalent to the total amount you owe but will be a substantial enough sum that your creditors will be inclined to accept it.
To start the settlement process, you’ll need to let your Insolvency Practitioner know what you’d like to do, how much you can afford to offer, and where that money came from. They’ll then put a proposal together and present it to your creditors in a variation meeting. Creditors representing 75% of your total debt amount will need to agree to the settlement for it to go ahead.
If your proposal is accepted, you won’t have to make any more payments, the debt will be settled, and your IVA will be closed.
What are the benefits of early IVA settlement?
Weighing up the pros and cons of early IVA settlement? Whether it’s the right choice for you will always depend on your individual circumstances, but here are a few benefits of ending your IVA ahead of time:
- You’ll be free from IVA spending restrictions
Being in an IVA can help you get your debts under control but, in return, you’ll have to live with restrictions on the amount you can spend and borrow. If you get a pay rise or your everyday expenses reduce, you’ll need to declare your change of circumstances and potentially increase your monthly payment rather than enjoying that extra disposable income. Ending your IVA early means you won’t have to worry about these restrictions anymore.
- You could apply for credit
During an IVA, you can’t apply for more than £500 of credit without getting special permission from your Insolvency Practitioner. Once your IVA has been settled, there are no limits on the amount and types of credit you can apply for.
- You can start improving your credit score
While your IVA will be listed on your credit report for up to six years after its start date, if you end it early, you can start taking steps to repair your score. This might include registering on the electoral roll, taking out a new form of credit and making all your payments on time, checking your report regularly to spot any errors, and keeping the number of hard searches carried out on your credit report low.
- You’ll be declared debt free
Not only will you be free from your monthly IVA payment, but you’ll also be officially debt free with nothing hanging over you – a clean slate to start fresh with your finances.
- You can continue with your IVA if the proposal is rejected
If you submit a proposal to pay a lump sum and settle your IVA early, the worst that can happen is that it’ll be rejected. If that is the result, then you’ll simply continue with your monthly payments as usual (or a new monthly payment if your windfall changes the terms of your arrangement) until the IVA comes to its natural end.
What should I consider with an early IVA settlement?
On the other hand, the cons of an early IVA settlement include:
- Your credit score will still be impacted
While your IVA might be finished, its impact on your credit score won’t be. In fact, your IVA will usually stay on your credit report for up to six years. This can have a negative impact on your credit score that’ll take time to repair.
- You’ll need to explain where the funds are from
You’ll usually only be able to bring your IVA to an end early if you have a good reason to do so and you will be asked by your Insolvency Practitioner where the money has come from. If it’s a gift and the giver is aware that you’ll use the lump sum to settle your IVA that’s one thing, but any other type of windfall can be a little more complicated.
- You’ll likely struggle to get credit
As the IVA will still be listed on your credit report for up to six years, negatively impacting your credit score, you might find it difficult to secure credit even though you’re not restricted to loans of just £500 anymore. It can be especially tough to secure credit for large purchases like a mortgage or a car finance agreement.
Looking for support with your IVA? Our friendly team of experts is here to help. Give us a call on 0161 8260 585 or send a message here
