Can I Pay My IVA Off Early?
Having an active IVA, or Individual Voluntary Agreement, on your credit report is often concerning, particularly if you need to take out a new loan. If your financial circumstances change for the better, you may be wondering, can I pay off my IVA early?
Here, we’ll look at whether you can settle your IVA early, if it’s the right decision for you, and how to go about it if you find yourself with enough funds to do so.
How To Repay Your IVA Early
If you’ve received a lump sum of money or a windfall during your IVA, you’re probably wondering if you’ll be able to pay it off early. The answer is yes, but there are a few things you need to take into consideration.
Remember that an inheritance or windfall that you’ve received will be classed as an asset in the agreement. For this reason, you must let your supervisor know about the asset as soon as you can.
A third-party such as a close friend or family member may offer to settle your IVA early through a “gift” of money. This may be appealing to your creditors as it won’t be considered an asset in the agreement, and it could enable you to pay off your IVA.
Should your IVA be paid off by a third party, they’ll be required to provide a form of identification. They’ll also have to verify that they understand how the money will be used.
In both of these scenarios, the source of the funds will need to be confirmed. This is a legislative requirement as it must be made sure that the money hasn’t come from an illegal activity such as money laundering.Check if you qualify
What Does A Full And Final Settlement Mean?
A full and final settlement is a lump sum payment that you can offer to your creditors to put towards paying off your debts. If the creditors accept this offer, you could settle your IVA early.
You’ll be able to decide how much money you wish to pay to the creditors, which will depend on a few factors. This includes how large the lump sum is, who the creditors are, and the chances of you being able to settle the full amount over a period of time.
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What Happens Once I Make An Early Settlement Offer On My IVA?
Contact your Insolvency Practitioner
Any decision to settle your IVA early needs to be discussed with your Insolvency Practitioner. They will decide whether to go ahead with the offer based on if they think your creditors will accept it.
If your Insolvency Practitioner thinks there’s a good chance your offer will be accepted, they’ll arrange a variation meeting, which gives the creditors a chance to consider your proposal. If at least 75% of the creditors agree to your offer, it will be accepted by the other creditors.
You’ll need a strong reason for wanting to settle your IVA early, and you’ll need to prove that you won’t have any financial difficulties in paying off the agreement early.
Borrowing money to settle the IVA isn’t a good idea, as you’ll be in the same position if you can’t afford to clear the new debt. For this reason, a realistic financial plan is essential.
How Do I Settle My IVA Early?
The first method of settling your IVA early is with a lump sum amount. An Insolvency Practitioner, or IP, can discuss with you how to make a lump sum offer to your creditors. If they believe your offer is good and it’s likely to be accepted, a variation meeting will be arranged with your creditor.
What happens if your Insolvency Practitioner doesn’t think your offer is reasonable? In that case, they’ll explain why and suggest a different option for you – especially if the money would be considered an asset of the agreement, such as an inheritance or a windfall.
When you make the offer, you’ll discuss with your creditor when the lump sum offer is to be paid. This means you won’t have to make any further monthly payments. If your creditor agrees to this offer, your IVA will end once the payment has been made.
Negotiate with creditors
The next step to paying off your IVA early is to clearly and honestly negotiate with the creditors and notify them of the situation. Most creditors may accept a large payment if you pitch the idea to them in the correct way.
You’ll need to tell them that your financial circumstances have changed and why settling your agreement early will benefit both parties.
If you receive an inheritance, you could use it to settle your IVA, even with monthly repayments. This is quite common as many people in debt don’t have clear ideas of what to do with an unexpected inheritance, apart from using it to pay off their debts.
If this is the case and you don’t have other major financial responsibilities, it’s a good idea to put your inheritance towards your Individual Voluntary Arrangement.
Sale of an asset
If paying your IVA off early is important to you or if you believe it will benefit you in the long term, you could sell an asset such as a property or a car and use the money to settle it early.
However, make sure it’s an asset that you can live without, not something essential that you need daily.
Is It Worth It To Settle My IVA Early?
Yes, there are many reasons why it may be worth it to pay off your IVA earlier than planned. You’ll be able to enjoy financial freedom without being tied to your arrangement, and you can begin to rebuild your credit score.
Even if your early settlement offer is rejected, you’ll still be able to continue with your IVA payments as you and your creditors previously agreed on, which means you won’t lose anything.
However, you should always seek professional debt advice and discuss your situation with your Insolvency Practitioner before you make any big changes to your Individual Voluntary Arrangement.
Your IP will be able to give you advice about the changes you want to make and whether they’re likely to be accepted by your creditors.
Will Paying Off My IVA Early Impact My Credit Score?
If you’re paying off your IVA early, you’ll have a head start on rebuilding and improving your credit rating. But, the arrangement will remain on your credit file for six years from the approval date.
It might still affect your ability to take out loans as well. For example, it’s unlikely that you’ll be eligible for a mortgage or any large credit product whilst your IVA remains on your credit file.
Where To Get More Information On IVAs?
Living with debt can be stressful and difficult for anyone, particularly if you’re struggling financially and you don’t know if you’ll be able to pay off your debts. That’s where IVA Helpline can assist you.
Our friendly and highly-trained specialists are IVA experts who are ready to help and offer you practical, unbiased advice. We understand that anyone can find themselves in debt, whatever your monthly income, so you can expect to be treated completely non-judgmental.
If you’d like free debt advice from a friendly expert, visit our Knowledge Hub or give our team a call today. You can also check out our useful online calculator to see if your debt qualifies for an IVA.
Frequently asked questions
Can I get a loan to pay off my IVA?
In certain circumstances, typically, after three years of having an IVA, you’ll be able to get a loan to settle your IVA, which can also help build up your credit score again and free you from your arrangement.
However, this may not be the best debt solution for everyone, so you should discuss it with your IP as well as seek debt advice from a professional to take control of your financial situation.
Taking out a loan to get out of your arrangement early should never put you in a position where you struggle again.
Can a family member pay off my IVA?
Yes, it’s possible for a family member to “gift” you the money to pay your Individual Voluntary Arrangement. But, they must show that they fully understand how the funds will be used.
The source of the money will also need to be confirmed to make sure it isn’t the result of any illegal activity.
How much should I offer in a full and final settlement?
This depends on how much you can afford, but generally, you should offer an equal amount to each of your creditors for a full and final settlement.
For example, if the amount you have is 75% of the total debt, you should provide each creditor with 75% of the money that they’re owed.
Should I remortgage my home to pay off an IVA early?
Remortgaging is a method of releasing the equity in your property to use the money for a different purpose. When it comes to an early IVA settlement, the money raised would be used to provide your creditors with a lump sum amount that will cover part of the debt they’re owed.
In return, they will agree to end the arrangement early. However, remortgaging may not be the best course of action for everyone because it can be difficult to do during an IVA.
If you’re in an IVA and you hold substantial equity in your home, you’ll probably be asked to consider remortgaging your property anyway. This is because it means you’ll be able to avoid being in the IVA for six years instead of the usual five.
You’ll need to have a high level of equity in your property to pay the IVA off early, which is why it’s essential to talk to your IP before you agree to remortgage.