Lump sum IVAs

posted by in Living with debt

This page contains information about debt solutions available in England, Wales and Northern Ireland. Debt advice in Scotland involves similar but different solutions. Before considering an IVA as a debt solution, please make sure you fully understand the risks involved when entering an IVA.

Lump of sugar representing lump-sum IVAWe’ve probably all heard of IVAs (individual voluntary arrangements). You can’t go on the internet or turn on the telly without seeing or hearing about how you can get a large percentage of your debt written off.

Many of us know that IVAs last between five and six years and if you’ve got a property there is a possibility that you’ll have to re-mortgage. But what about the lesser-spotted IVA – the lump sum IVA?

It’s pretty obvious, but first of all you’ll need a lump sum to qualify for a lump sum IVA. This can be money from a third party such as a friend or relative. The money could also come from other sources such as redundancy money, or the cashing in of a joint endowment policy.

The important thing is that you must have enough money to be able to cover all of your outgoings but not enough to cover all the contractual payments to your creditors. You can then use the lump sum to offer your creditors a one-off payment in full and final satisfaction of the debt through a formal insolvency agreement.

How do creditors look at lump sum IVAs?

Creditors are generally very accepting of these arrangements. They often find that creditors will accept low returns in exchange for a chunk of cash now.

How long does it take?

It usually takes around 2 months to get your IVA up and running, and a lump sum IVA is generally completed 6 months after this. Having said that, in the past StepChange Voluntary Arrangements had a lump sum IVA approved by creditors and completed within 10 days.

Of course this doesn’t take into account the length of time it took to draft the proposal and present it to creditors but it shows the speed of which things can be wrapped up. The exact timescales depend on your situation, but we’ll always keep you updated and make sure you know what to expect.

Once your IVAs completed, your debts will be classed as settled, however it will remain on your credit file for 6 years after the date of approval.

This article does not cover all of the benefits, risks and considerations of lump-sum IVA. We would always recommend you seek expert advice by using our online Debt Remedy tool or speaking to us to see if this is a suitable solution.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

Written by

Tags Living with debt
  • Obviously the lump will depend on what assets the debtor may have; it works very well for some in a rent home as against someone that owns a property with some equity. The greater the equity share of the debtor the greater the lump sum.

    I generally suggest the lump sum figure should be somewhere between half and two thirds of the outstanding sum, less if that is all the debtor can afford.

    This figure can be a lot less if you can prove that creditors will get a lower return in bankruptcy. The key to all this is the final page of the IVA proposal, what does the lump sum offer against the debtor going bankrupt?

    IVA lump sum offers are not generally advertised or openly discussed with the debtors that are already into a 5 year plan. One reason may be is that the IVA provider earns more income from supervision over the full five years as against a lump sum offer to end the IVA after say three years early.

    Good to highlight this option, just need to make those already in IVAs aware that they too can end it early by offering a full and final lump sum.

    DebtWizard

  • Hi Mike, thanks for the comment, it’s really insightful. Lump sum IVAs are an under-utilised option.

  • sarah

    Reading this thread is very interesting. I have a question re lump sums. I have the option of taking medical retirement. I have just entered into an iva (only 3 months) debts 44300. Total contributions will be 17000 in 5 years including 4300 from remortgaging my house in year 5 or an extention. If I were to take medical retirememt in about 6 to 9 months would the lump sum be used to pay off the iva? If that were the case my monthly income would be drasically reduced and I would have to sell my home. Its dificult as my health has declined rapidly in the last few weeks and all be it I have the option to start the proccess of ill health retirement could not aford to enter intto it if I were to have to pay 44000 into the iva. I would receive 64000 lump sum and 760 per month. It does say my pension is excluded but when I called my iva company they said it would be classed as a windfall.

    • Hi and thanks for your comment.

      I’d recommend that you take advice from the Insolvency Practitioner who is Supervisor of your IVA.

      In most cases this lump sum would be classed as a windfall and would need to be paid into the IVA. However, there are such things as ‘variation meetings’ where you could vary the terms of the IVA in light of your new circumstances.

      You would need to discuss this with the Supervisor of your IVA. Any variation to the terms of your IVA would need to be approved by your creditors.

      I hope this helps.

  • sb

    hello
    i’ve got debts of about 36000. cccs advised me to go for bankruptcy as i dont enough surplus money to qualify for an iva. i spoke to my aunt about this. she’s willing to help me with 9,000. i’d take her help if i could do a lump sum iva with 9,000. otherwise my only option would be bankruptcy. please let me know if this money is enough to reach an iva. please email me the same if you could. thank you ever so much

    • Hi sb and thanks for your comment,

      A lump sum IVA with funds from a third party could be a solution; we can’t comment on what would be accepted or not as this is entirely up to your creditors. What’s important is that you’re making your best efforts to repay.

      I’d recommend that you get back in touch with us in light of this offer from your Aunt so that we can look at the situation again.

      I hope this helps.

  • SAB

    I have been on a DMP for a few years and have reduced my debt by around half now – it stands at £14k.

    I may be able to offer a lump sum – £5-6k in next couple of months. Would voluntary full and final settlement or lump sum IVA be a likely option?

    I hold a professional qualification (CPC for vehicle operator’s licence) would that be affected by IVA?

    • Hi there,

      it’s great to hear you’ve made such progress in your DMP. I would recommend you call us to discuss further options. We do have a settlements team here who can look at how you can make settlement offers that are fair for all concerned. I would say it’s very unlikely that an IVA would affect your vehicle operator’s licence so please don’t worry about that.

      Best regards

      Rachel

  • disqus_8qld00nZ4u

    I have just had a charging order put on my house in lieu of a £4000 credit card debt. My total debts are 18k, would a lump sum iva be an option for me and would the charging order be removed if my creditors approved the iva?

    • moneyaware

      Hi there,

      Charging order debts aren’t included in an IVA because it is effectively now a secured debt.

      That doesn’t meant that an IVA is out of the question for the other debts. It’s just a matter of looking at it alongside your other options.

      If you’ve got a lump sum available than a lump sum IVA could work or alternatively you could negoatiate settlements with your debts on a more informal basis.

      I’d recommend you get in touch with us for in depth advice to work out what suits your situaiton. Here’s the contact details: http://www.stepchange.org/Contactus.aspx.

      Kind regards

      James

  • moneyaware

    Hi Nigel,

    As you’re on an active IVA we’re not able to give you any advice. If you’re finding the restrictions frustrating you should talk to your insolvency practitioner (IP) – you’re paying them to give you advice throughout the term of your IVA.

    Sorry I can’t be more help.

    Take Care,
    Jess

  • moneyaware

    Hi Joe,

    Thanks for posting.

    A lump-sum IVA may be one of the options we could discuss with you but it’s better to look at the whole situation first so we can offer the best advice.

    You can use our free, anonymous online Debt Remedy tool available at http://www.stepchange.org/debtremedy.aspx which will offer the best advice for your circumstances.

    You can also enter any money you could be due to receive from family into Debt Remedy and we’ll also take this into consideration.

    Alternatively, you can talk to us by visiting http://www.stepchange.org/contactus.aspx for more information on how to get in touch.

    I hope this is helpful,

    Rory

  • moneyaware

    Hi Ali,

    Thanks for getting in touch.

    A full and final settlement is sometimes accepted by a creditor to help pay off your debt. Usually, this amount tends to be less than the debt
    so there is a chance your creditor will refuse the offer. On the other hand, a lump sum of money now rather than a trickle over several years
    is beneficial to them, as it means they’ll save on admin fees in the long run.

    We’re not able to suggest a percentage amount for you to offer as it tends to vary between creditors. You may have to negotiate with each creditor individually before
    you both agree to an amount. If a full and final settlement agreement is made, we’d suggest you get confirmation from the creditor in writing to confirm they’ll be accepting your offer.

    If you want more advice on full and final settlements, it might be worth giving our helpline advisors a call. They’ll be able to have a chat about the situation and find an alternative solution to deal with your debt if a full and final settlement is not accepted.

    Our helpline number is 0800 138 1111 and this is free for most landlines and mobiles.

    I hope this helps,

    Jen

  • Laura

    Hi
    My husband and I completed our IVA in July 2014. Our credit scores are still very low. Our car is falling apart and now we are finding it very difficult to get credit for a newer car. Our credit scores are 528 and 523. I recently applied for a credit card (recommended by Noodle based on my score) just to try to boost my score but this was declined. How can I increase my score without taking out credit card, overdraft or loan. I need to do something fairly quickly, I fear we will be a family of four without a car, school and work each day means taking 8 buses a day.

    • moneyaware

      Hi Laura,

      Thanks for your message.

      An IVA will remain on your credit file for six years, from the date it began. Because of this, it’s likely you’ll find it difficult to get credit during this time. There are also lots of other things that can affect your credit rating and there’s usually no hard and fast way to simply improve things, although there are plenty of articles online from credit reference agencies around how to help things.

      It’s down to each individual lender to assess your criteria, and each will use this differently. Sometimes because of this, people take out loans that are designed for poor credit which can be much more expensive to repay as you’ll be seen as a higher risk.

      One thing is for certain though, nothing shows on your credit file forever and often you’ll have to wait until the IVA and other entries don’t show any more. I can understand though that this doesn’t help your immediate situation.

      We have an article with a few tips on it to help you improve your credit file after a debt management plan, however the tips can apply to anyone, you can find it here:

      http://moneyaware.co.uk/2013/10/how-to-improve-your-credit-rating-after-a-dmp/

      I hope this helps,

      Jen

  • jo

    Hi… we recently sold a property to pay off the full amount outstanding on our IVA, the IVA now hold all the monies from the sale (£35,0000 over the debt) and they tell us we have to wait up to 10 weeks for our money back!? is this right?

    • moneyaware

      Hi Jo,

      Thanks for your message. As an IVA is a formal agreement between you and your creditors, this isn’t something I can comment on. Whether or not your IVA company can do this will depend on the contract you have with them. I’d suggest you get in touch with your Insolvency Practitioner (IP) who will have more information about your specific circumstances.

      Alternatively you could contact the Insolvency Service for further guidance. You can find out how to get in touch with them here: https://www.gov.uk/the-insolvency-service

      I hope this helps.

      Kind regards,

      Laura

  • Shiv

    Hi I have recently contacted citizen Advice about debt problems. My Husband was in a high paid job but has been of sick with health issues for past 5 months. He has just been made redundant and we have about 30,000
    + worth of debts with various creditors mostly in my husbands name but some joint. He is still not fit for work and not sure how soon he will be able to return. He has got a redundancy payment coming of 15,000. The Cit Advice said they would be a possibility of a lump sum IVA . Any advice would be welcome.

    • moneyaware

      Hi Shiv,

      Thanks for your message and I’m sorry to hear about the problems you and your husband are facing at the moment.

      I’d recommend you give us a call and have a chat with one of our advisors about this, and they can take a look at your financial situation in more detail. If an IVA is something we’d recommend for your situation then we’d be able to support you through the process. If another solution would be more appropriate then we would be able to discuss it with you and work out how we can best support you. Our advice is free and impartial, and you can read more about the solutions we offer here: http://www.stepchange.org/Howwecanhelpyou.aspx

      You can find out how to get in touch with us here: http://www.stepchange.org/contactus.aspx

      I hope this helps.

      Kind regards,

      Laura

  • Elaine

    Hi I have been in an IVA for 40 months paying £200 a month also £3,000 paid in from PPI claim, my total debts were £17,000 and I am in line for a windfall from a will and will be able off the debts will the money I have already paid in be deducted from the amount I owed of will I loose these payments and have to pay the full £17,000