When entering into a standard IVA you agree to make monthly payments for a fixed period of time, at the end of which the rest of your debt is written off. Although this type of arrangement is by far the most common there are occasions when an alternative solution will be more appropriate. One such alternative is a Lump Sum IVA.
What is a Lump Sum IVA?
Lump Sum IVAs - also known as a Full and Final - are a type of Individual Voluntary Arrangement in which instead of making a series of monthly payments you settle your debt with a one off amount. In this case you offer to make a large single payment to your creditors who will agree in turn to write off the remaining unpaid debt.
When is this type of IVA suitable?
The conditions in which this type of arrangement is most suitable are quite rare. For it to be viable you will need -
Creditors will only accept an IVA proposal if they consider it to be the best option available to them. Normally this would be an offer in which you make the highest realistic monthly repayments for sixty months and so guaranteeing your creditors a return over five years. Where you have no ability to generate monthly payments but do have access to a lump sum then it can become an option. Often people arranging an IVA with a single payment have retired, recently been made redundant or are planning to move abroad.
How can I find a lump sum amount?
There are several ways in which people generate the lump sum for this type of IVA. Common examples include -
What are the advantages of Lump Sum IVAs?
For both you and your creditors this type of arrangement can offer a number of benefits. For you it can allow you to enter into an IVA when otherwise you would be unable to do so and so can help you to avoid bankruptcy. The one off payment is a route to becoming debt free relatively quickly and will enable you to have some of what you owe written off.
Many creditors prefer lump sum IVAs over other alternatives. The returns are likely to be higher than if you were instead forced to declare bankruptcy and since the IVA only needs to be supervised for one year rather than five there is a significant reduction in administration fees. Also some creditors simply prefer to receive a one off payment immediately instead of multiple payments over a longer period of time.
Will a Lump Sum IVA affect my credit rating?
As with a standard Individual Voluntary Arrangement your credit rating will be affected. A record of the agreement will show on your credit file for six years before it is removed. However since the single payment IVA enables you to be debt free in a short period of time you can at least start improving your credit rating right away.
How can I arrange this type of IVA?
For a lump sum IVA to go ahead the approval of 75% of your creditors is needed. The offer to make a one off payment can be made at the start of the IVA process or at any point in an already on going arrangement. If you are already in an Individual Voluntary Arrangement you will need to speak to your supervisor who can put a new proposal to your creditors. If agreed the lump sum simply means that the IVA will be brought to an early conclusion.
At Royal Exchange we can assist you on all aspects of arranging an IVA. By conducting an in-depth review of your finances we can advise you if making a one off payment will be the best solution to your debt problems.
To find out more about Lump Sum IVAs and other debt solutions complete our enquiry form or call our debt helpline on 0800 028 4422. Alternatively to discover if an IVA is the best solution to your debt problems use our online debt calculator.