Full and Final Settlement IVAs
A Full and Final Settlement IVA could serve as a good alternative solution for you if you have insufficient surplus funds available each month to enter a contribution based IVA.
This IVA is also known as a Lump Sum IVA and, as you will see, it offers a very clean way of becoming debt free.
What is a Lump Sum IVA
A Lump Sum IVA is based on the proposal that a single payment is made to your creditors, which constitutes a full and final settlement of your debts.
This type of IVA benefits from all the advantages of the more commonly used contribution based IVA, but rather than being based on 60 monthly contributions, it concludes with the introduction of the lump sum.
Lump Sum IVAs are most often put forward using funds from a 3rd party, such as a family member or friend, although the funds can also be raised through the sale of an asset.
How does a Lump Sum IVA work?
As previously mentioned, a Lump Sum IVA consists of just one payment, rather than the typical 60 monthly payments associated with a contributions based IVA.
If 75% of creditors or more, in debt value terms, accept your proposal, the IVA becomes legally binding on all creditors.
Once accepted, even those creditors that voted against it are legally bound to it.
As with all IVAs, on acceptance, the creditors must freeze interest, stop any fines or charges and refrain from taking enforcement action to recover their debt.
Who collects and distributes the funds?
Your Insolvency Practitioner (IP) collects the pledged funds on behalf of all the creditors as one of their duties under the IVA.
When all the creditors' claims have been received and verified, your IP will distribute the agreed amount to each creditor, on a pro-rata basis.
Once creditors have been paid their dividend, your IP will complete the formalities and issue you with your Certificate of Completion.
It is at this point that the IVA formally concludes and any debt left unpaid is then legally written-off.
If the pledged funds are made available on the day of acceptance, we would anticipate completion of the whole process within 3-6 months.
Where can the funds come from?
In most circumstances, funds for a Lump Sum IVA will be provided by a 3rd party, such as a family member or friend.
However, funds can come from the sale of an asset, if it's of sufficient value to satisfy creditors requirements.
It may even be a mixture of an asset and cash and, so long as creditors find your proposed offer agreeable, there’s a good chance of acceptance.
In essence, if your creditors believe the lump sum provides them with a better financial return than they would otherwise receive through your bankruptcy, they'll be interested.
What are the advantages?
There are significant benefits of a Full and Final Settlement IVA to be found for all parties.
Firstly, its a quick solution. It removes the burden of having to maintain debt repayments on acceptance, whilst usually generating a significant debt write-off in the process.
Secondly, your creditors receive their money more quickly and, usually, in one payment, rather than payments being drawn out as they are through a contribution based IVA.
Thirdly, your IP has the benefit of a shorter period of administration, which lessens the chances of the IVA failing.
How much should I offer?
This is an extremely difficult question to answer as the amount needed will undoubtably be influenced by the personal circumstances of the applicant.
But there is a good 'rule of thumb' that helps calculate what your minimum offer should be.
It suggests a minimum offer based on 65% of the original debt level, starting at debts of £10,000 and reducing on a sliding scale by 1% per extra £1,000 owed, until it reaches 25% for debt levels of £45,000 and above.
It’s worth noting that creditors will be expected to pay all of the IVA fees and costs from out of the funds you provide, so any offer you put forward will be reduced as a result.
In any event, the amount you put forward should represent your best offer, and our experience tells us that creditors will review each offer on a case by case basis.
If you would like an accurate assessment of what you would need to put forward, simply call one of the team on 0800 856 8569.
