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Lump sum IVA
A lump sum IVA (individual voluntary arrangement), also known as a full and final settlement IVA, is a good alternative solution to a traditional contribution based IVA. This kind of IVA is usually useful for people who have received or are due to receive a windfall or lump sum of some kind.
How does it work?
There is just one payment in a lump sum IVA providing you with the opportunity to pay off your debts and settle with creditors instead of making contributions for five years. The insolvency practitioner (IP) who is dealing with you will help you put together a proposal to put to your creditors for them to consider.
75% of creditors by value will have to accept the proposal, if you do not hit this then you will have the opportunity to work on a new proposal with your IP unless your creditors decide to petition for your bankruptcy.
If the proposal is accepted, it will become legally binding for you and all creditors, even those that voted against it. Once the IVA has been accepted and you’ve entered into it, charges on the debt and interest is generally frozen and refrain from any legal action against you.
When it comes to collecting the money from you to distribute to your creditors, your IP will handle all funds for the settlement of the debt. All claims from your creditors will be verified after they have been received before the IP sends out any distributions.
After these checks have been completed, the IP will distribute a proportion of the settlement fund to each creditor on a pro rata basis. Your creditors will pay all of the IVA fees out of the funds which you provide, meaning that what you put forward will be reduced slightly for them but it is still only one payment for yourself.
If you feel like you would benefit from a lump sum IVA but the amount you can offer is less than your creditors will accept, it is possible for you to enter a lump sum and contribution based IVA together. This could work with you paying off a lump sum and then making affordable monthly contributions until you have paid off the amount agreed to by yourself and your creditors. This is dependent on your circumstances and is worth inquiring with ourselves about.
The benefits for you and your creditors
A lump sum IVA can be beneficial for yourself and for your creditors for many reasons, as long as you fulfil the criteria, including:
- You will be removing your debt burden at the same time as crystallising a debt write off
- Most creditors believe that a lump sum IVA provides them with a better financial return than they would receive by filing for your bankruptcy
- Your creditors will receive their money in one single payment meaning that the IVA fees will be lower. For the creditors this means that they will get to keep more of the funds that have been offered in the IVA proposal.
How long can it last?
A lump sum IVA typically lasts for around six months depending on your situation and when the money you are waiting on receiving will be made available to you. The longest part of the lump sum IVA is typically when the proposal is being drafted by your IP and the presentation to creditors. As soon as you have paid the money to your IP and they have distributed it to creditors, your IVA will be complete.
What happens when my IVA is complete?
As mentioned above, you will pay your lump sum of money to your IP and they will distribute it to your creditors on a pro rata basis after fees have been paid. When this has happened, the debt will be classed as settled but it will remain on your credit file for 6 years. The IP will then complete the formalities, issue you with a completion certificate and the obligation for you to make further contributions to these debts is removed.