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If you have entered an Individual Voluntary Arrangement you’ll no doubt agree that it make your financial burdens much easier to bear. The benefits include;
As enamouring as this all sounds, an IVA does have its drawbacks too.
If you are lucky enough to come into some money or someone is generous enough to pay the debt for you while the IVA is in place, then the option to get out of it early may be appealing to you. Your debts will be written off earlier, you can get a head start on rebuilding your credit score, and you will be free of the restrictions that are imposed on you during the IVA.
The IVA will still show on your credit file for six years regardless of whether it is paid up early or not, but early repayment also means that you are free to apply for small amounts of credit again. This could help you increase your disposable income and give you a bit more freedom.
So, how do you get out of an IVA early? Essentially you are going to need a lump sum of money that is enough to satisfy your creditors requirements to the point where they no longer require regular monthly payments from you. They will also need to know where the money has come from.
If you believe that getting out of an IVA earlier is going to be advantageous to you then you need to speak to your Insolvency Practitioner about your potential offer. They will advise you on if they think the creditors will accept it before arranging a meeting with them.
When it comes to working out your IVA settlement figure each case is completely individual. Technically speaking, the creditors have already given you a discount by agreeing to reduced payments and freezing your interest.
This means that your lump sum offer is probably going to have to be very close to what you would be paying if you completed your 60 monthly payments with the IVA. Remember that they are under no legal obligation to accept a lump sum offer.
The first thing you should do, then, is to work out how much you have left to pay if the IVA were to run its full course. To work this out just take your current monthly payment amount and multiply it by the remaining months.
So for example, if your monthly payments are £150 per month and you still have 24 months remaining on your IVA, you would still owe £3,600 (£150 x 24 months). Your proposed settlement figure would need to be around this figure. If the offer is too low, it will be rejected by the creditors.
If the offer IS rejected by the creditors then the good news is that the IVA can carry on as before. There should be no adverse effects from offering the early settlement figure. Knowing how to get out of an IVA doesn’t mean that it is the best course of action for you. Other things you may want to be aware of include filing for bankruptcy and also trying DMP advice to get the help you need.
The creditors will want to know why you want to finish it early and how you are planning to pay for it. Here are a few scenarios of how to get out of an IVA early and why you might want to work out an IVA settlement figure;
Situations change, and what was acceptable for you to afford at the beginning of the agreement may not be acceptable now. Reasons for this can include -
Your creditors may accept reduced payments if you have proof that the issue is ongoing and that your IVA will fail if you have to keep making the current payments. Doctors notes, payslips, P45 slips and hospital appointment cards will all help to verify your untenable situation.
If you have enough money to make a serious offer that will close the IVA then your motivation is not relevant in this case. What is important, is that whoever is offering to give you the money to pay off your debts makes it clear that the money is a gift and not a loan.
It would help your cause if they are able to write a letter to your creditors to say that they are willing to give you this money only on the condition that the IVA is paid in full.
It may sound like a technicality, but if your creditors think you have access to that kind of money and can still continue to pay your monthly payments to them there is a good chance that they will reject your proposal. By giving them an ultimatum they are far more likely to accept the offer.
This one is a little trickier. Most IVA agreements have a built in clause that requires you to contribute some or all of your windfall into your IVA. There are some exemptions such as legal compensation, but on the whole the windfall will be expected to go towards your IVA. Discuss this with your Insolvency Practitioner.
If the windfall is enough to cover your IVA then it will be completed early. If it is not your creditors will still expect you to carry on making your regular payments until the debt is fulfilled.
When you undertake an IVA you are subject to yearly meetings with your IP to discuss how it is working out for you. If you are in Scotland, the equivalent solution is a Trust Deed which follows a similar process. After you have completed about half of your payments they may suggest an ‘early exit loan’. As you are still considered a high risk to lenders, the APR on these types of loans is typically very high but it may still work out less than what you are paying to your creditors each month.
This one needs a lot of thought and careful consideration. If you are successful in your loan application your payments may be brought down but you may also end up paying the debt over a longer period of time than the IVA would have taken.
Your IVA full and final settlement calculation will ultimately be determined by your creditors. If you are in the position to offer a substantial amount of money to clear the debt then you need to discuss it with your Insolvency Practitioner first. They will have a good idea of whether they think your creditors will accept your offer of full and final settlements or not.
If they think that your offer stands a fair chance of being accepted, the process to implementing it is much the same as applying for the IVA in the first place. Your IP will write to your creditors to invite them to a variation meeting. The purpose of the meeting is for all your creditors to discuss whether to accept your offer or not.
Like the initial IVA process, if 75% of the creditors agree to your proposal then the offer will be accepted. Even those creditors who may have voted against it will be legally bound to accept it if 75% of the other creditors agree.
It’s important to realise that getting an early settlement is not guaranteed. There is no real rhyme or reason as to why creditors accept or reject offers. As with all financial ventures it is a good idea to really do your homework before coming to a final decision and seek as much advice from professionals as possible.