You might have heard of an Individual Voluntary Arrangement, or IVA before, but did you know that they don’t always require a monthly payment?
Lump sum IVA’s, also known as one payment IVA’s, full and final IVA’s and 1-day IVA’s are an alternative to a regular monthly payment IVA. They are good for people who might not be able to afford a monthly payment but have a lump sum of money to offer to their debts.
If you’ve got a lump sum and it’s clear that using this lump sum to pay off your debts is your only option, your creditors may agree to take a payment from you and write off any remaining balance. The funds could have been a gift from a friend or family member, raised from the sale of a property or from redundancy or a pension release.
Any IVA is a legally binding agreement with your creditors which means you’ll need the help of an Insolvency Practitioner (IP) to set one up. There are benefits and risks so it’s important you understand if it suits you.
You’ll need to discuss your situation with an IP, and they’ll offer you advice on whether the lump sum IVA could be an option. If it is, they’ll work with you to agree on a proposal to present to your creditors. This forms the basis of the agreement between you and your creditors. Once you’re both happy that it’s fair to you and the creditors, it will be sent to them to review and vote to accept or reject it. 75% or more of the creditors must agree for the IVA to be accepted. Once approved, you’ll pay the lump sum, the IP will deal with sending it out to the creditors and the remaining debt will be written off. This means you can’t be chased for any debt that was included within the IVA and legal action is prevented too.
A one payment IVA can take as little as 3 months, which is a huge difference to 5 years in a monthly payment IVA.
If you can no longer keep up with repayments and know that you’ll definitely receive a lump sum of a certain value in the foreseeable future, we could put forward your IVA now, on the basis that you’re going to stop payments to the debt, then pay in the lump sum when you have it. Whilst they are waiting, your creditors can’t chase you for the debt.
A good example of this could be that you’ve retired and have a reduced income but have a lump sum available from a pension. You might not be able to afford monthly repayments but could now offer a one-off payment to satisfy the debts.
Redundancy is sadly becoming more and more common. With COVID-19 playing a huge part in many companies needing to reduce staffing levels to more affordable numbers, you may have found yourself redundant with a lump sum in the bank, while still having debts left to pay.
Deciding how you move forward with your employment and debt repayments can be pretty tough. Your number 1 priority should be keeping up to date with household priority bills, secured debt and avoiding accruing further debt.
To utilise your redundancy, you’ll need a plan. If you’re confident that you’ll be back in employment within 4 months, we’d suggest dividing your lump sum across 6 months (just in case it takes a little longer) to cover essential spending/replacing your salary and offering the rest to your creditors as a lump sum towards the debt. You need to consider your skillset, your previous salary and the demand for current vacancies when coming up with an appropriate timescale.
A guaranteed offer of return for the creditors to pay off the debt could be more favourable compared with potentially waiting for a monthly payment that could be tarnished with instabilities such as a lesser salary, risk of future redundancy, uncertainty surrounding Brexit etc.
A lump sum IVA could give you the option of turning your redundancy from bad to good, maybe the starting of a new career and becoming completely debt free!
The level of write off will depend on your circumstances. Your creditors will want to get your “best offer”. Some firms advertise IVAs as a “government backed” way to write off 80% of your debt. Beware! Check that the firm that is advising you is FCA regulated and able to give you advice on all the options available. Some advisors will have “sales” targets and therefore may be trying to make you “fit”. Don’t be afraid to ask them. It is important that your money is paid into safe hands.
You may have received offers for direct settlement with your creditors. The benefit of an IVA is that all your debts are included and the balance that you cannot afford to pay is written off. Making direct settlements can sometimes mean that the first people you speak to demand so much of the money that you end up without enough to “go round”. The IVA gives you certainty. However, there are costs involved, we would charge 15% of the amount you pay in as a fee, payable from the lump sum you pay in. This means there is less to pay out to your debts.
Why not let our team discuss it with you? We know which creditors can be difficult to deal with.
Get in touch. We can offer advice online, via email or via telephone and are happy to accommodate you in any way we can. If a one payment IVA is the best solution for you, we won’t ask you to pay anything until the offer has been agreed to by your creditors.
We don’t just offer advice on IVA’s. As a fully regulated debt solution provider, we are able to offer advice on all UK debt solutions, via our online debt advice tool, email, or telephone.