Contribution based IVA
This type of IVA consist of scheduled payments, or contributions, which run for a predetermined timeframe, normally set to 5 years, after which the IVA is consider to have successfully completed.
It's this predetermined 'fixed term' of an IVA that creates one of its main advantages over other debt solutions.
The Importance Of The Fixed Term
IVA contributions are set to what is affordable for the applicant, based on their personal circumstances.
Unlike the principles behind a Consolidation Loan or a Debt Management Plan (DMP), the size of the payments do not determine the length of the agreement.
The term of the IVA is pre-agreed and can't be changed by creditors, irrespective of the size of the IVA contributions and the amount that will be repaid within that term.
This means that there is a high probability that the IVA will successfully complete before all the original debt has been repaid.
When this happens, creditors are under a legal obligation to write-off any outstanding balances left unpaid by the IVA contributions, leaving the applicant completely debt free, even though they may not have repaid all of their original debt.
It's this aspect of the IVA process that provides such a significant benefit to the IVA option, when compared to a Consolidation Loan or a Debt Management Plan.
Changes to the length of an IVA
There are 2 potential circumstances that could alter the fixed term of the IVA, neither of which can be imposed by the creditors.
- A Payment Break: At the Supervisor discretion one 'payment break' can be agreed, in which case the IVA will be extended by the same amount of months as the break, to ensure the number of IVA contributions remains at the agreed level.
- The Equity Clause: Homeowners will be expected to extend the IVA by up to 12 extra payments if they have equity in their property which can't be released into the IVA, in line with the IVA Equity Clause..
It's also possible for an IVA to be brought to an early conclusion by means of an early settlement, but only at the request of the applicant.
Early settlement of an IVA
Whilst the term of the IVA is fixed at the outset, it is possible to seek an early settlement when circumstances permit.
The circumstances that provide the opportunity to offer an early settlement could arise through receipt of a financial windfall, or through an offer to introduce 3rd party funds such as money from a friend or relative.
Creditors will consider an offer of early settlement, particularly when they believe accepting the offer represents their best interests.
If you would like to have a chat with an IVA professional, in complete confidence and without obligation, please call our helpline on 0800 856 8569 where one of the IVAorg team is waiting to help you.