Can I repay my IVA in a lump sum, and if so, will it affect my credit rating?

Summary: This article discusses how and when a lump sum may be used to repay an IVA and also the impact such an action may have on the individuals credit rating.

An Individual Voluntary Arrangement (IVA) is an alternative to bankruptcy for those who are insolvent and have more than about £12,000 in unsecured debt. Individuals repay an affordable monthly repayment based on what they can reasonably afford after all essential expenditure is taken into consideration.

Can I end an IVA early by paying a lump sum?

In certain circumstances, the creditors involved in an IVA may agree to end the IVA early if the debtor is able to pay an agreeable lump sum towards their debt. This would normally be from a windfall, or any unexpected sum of money from a third party. Such a repayment is usually referred to as a Full and Final Settlement, after which any remaining debt will usually be cleared. Such a payment can be made at any point during the term of the IVA, and in order to do so, the individual should discuss the option with their IVA supervisor to put the proposal to the creditors. As with any IVA agreement, creditors of at least 75% of the total value of the debt must be in agreement. A lump sum payment may also be offered to shorten the overall length of the IVA.

Can I start an IVA and then make a full and final settlement immediately?

There may be circumstances where an individual would like to enter an IVA , but does not have sufficient income to be able to make regular monthly repayments, but they do have a significant lump sum available to them. In these circumstances, assuming the lump sum is going to repay the creditors more of the outstanding debt than bankruptcy, they may agree to such a full and final settlement. Such an IVA may be suited to a pensioner, or perhaps someone who has just been made redundant.

If I repay my IVA through full and final settlement, will me credit rating be cleared earlier?

When entering an IVA, it will be recorded on the individual's credit record for a period of 6 years (as with most entries on the credit record). As an IVA usually lasts for around 5 years, when it is completed, the record will remain on file for a further 12 months. If, however, the IVA is completed early through a full and final settlement, it will still remain on the credit file for the full 6 years. Even if the IVA was set up purely to be completed immediately through a full and final settlement, the fact will still be logged for the full 6 years.