A debt solution called a Full and Final Offer IVA could be a more viable solution for you if your monthly income is not high enough to cover the minimum payments of a contribution-based IVA. In many situations this type of IVA is better than other solutions such as a debt management plan.
The IVA is also known as a Lump Sum IVA, a full and final settlement offer is an excellent method to become debt-free.
What is a Lump Sum IVA
With a Lump Sum IVA, you might be able to offer your creditors a Full and Final Settlement instead of 5 years’ worth of payments which, if approved, will take care of any remaining debt.
A full and final settlement IVA allows you to take advantage of all the benefits that come with a contribution-based IVA while still concluding immediately. A Lump Sum IVA is usually the right solution when you’re receiving money from an outside source, like a family member or friend and allows you to pay a partial settlement for the full amount of debt.
How does an IVA work if I want to pay it off in a lump sum?
A Lump Sum IVA, as the name implies, is one big payment rather than the usual 60 monthly instalments associated with a contributions-based IVA.
An IVA becomes legally binding on all creditors if 75% of them, in debt value terms, accept the proposal. Even those that voted against the proposal become legally bound by it.
After you’re accepted into an IVA, all your creditors are required to stop adding interest and charges to your debt, as well as any legal action related to recovering their money.
Who collects and distributes the funds?
The Insolvency Practitioner, as one of their responsibilities under the IVA, collects all of the money for the settlement on behalf of all creditors.
When all of the creditors’ demands have been settled and verified, your IP will divide a portion of the payout among them based on a pro-rata split.
According to the terms of the IVA, your responsibilities are completed as soon as the money reaches your Insolvency Practitioner.
Although it may take an additional six months for the Insolvency Practitioner to finalize everything and issue your completion certificate, you will no longer be legally obligated to make any more contributions toward your debts.
Where can the funds come from?
In most cases, the money will come from a third party, such as a family member or friend.
If you have an asset of a high enough value, selling it can give you the money needed to pay off your creditors.
Creditors are more likely to accept an offer if it includes both cash and assets.
In other words, if your creditors believe a lump sum payment to them would result in a greater financial return than they could get from your bankruptcy, they will be interested.
What are the Advantages?
The Full and Final Settlement IVA offers several advantages to everyone involved.
The IVA removes your debt burden in one fell swoop whilst crystallising a debt write-off in the process. This means that your creditors will receive their money in one payment, which they prefer, and the IVA fees are lower.
It is worth mentioning that your credit report/credit rating from the credit reference agencies is not immediately improved on completion but your obligations are complete in the IVA once you have transferred the funds.
How much should I offer?
The amount required to clear a specific debt level will undoubtedly be affected by the applicant’s personal circumstances.
Although there is no exact science to determining your minimum offer, there is a ‘rule of thumb’ that can give you a general idea. This rule suggests that for debts starting at £10,000, your minimum offer should be 65% of the original debt level. For every extra £1,000 owed, this percentage decreases by 1%, until it reaches 25% for debt levels of £45,000 and above.
Creditors will pay all of the IVA fees out of the funds you provide, so in reality, the offer you put forward will be reduced further in their eyes.
Always remember to put forward your best offer, as creditors will review each case individually.
