Full and Final Settlement IVAs
A Full and Final Settlement IVA could serve as a good alternative solution for you if your circumstances dictate you have insufficient surplus funds 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 smart way of becoming debt free.
What is a Lump Sum IVA
A Lump Sum IVA might provide you with the opportunity to propose a Full and Final Settlement to your creditors, instead of 5 years of contributions.
This type of IVA benefits from all the advantages of a contribution based IVA but rather than relying on 60 months of contributions, it concludes immediately with the introduction of a lump sum.
Lump Sum IVAs are generally most appropriate when you're using money from a 3rd party, such as a family member or friend.
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, in debt value terms, accept the proposal the IVA becomes legally binding on all and even those that voted against the proposal become legally bound by it.
As with all IVAs, once accepted the creditors must freeze interest, stop any charges being added to the debt and refrain from taking legal action related to the recovery of their debt.
Who collects and distributes the funds?
Your Insolvency Practitioner, as one of their duties under the IVA, collects the funds for the settlement on behalf of all the creditors.
When all the creditors' claims have been received and verified, your IP will distribute a proportion of the settlement fund to each creditor, based on a pro-rata payment.
Your obligations under the terms of the IVA are considered met once the funds have been received by your Insolvency Practitioner.
And, although it can take a further 6 months for the Insolvency Practitioner to complete the formalities and issue your completion certificate, your obligation to make any further contribution to your debts is removed.
Where can the funds come from?
In most circumstances the funds 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 generate enough money to satisfy creditors requirements.
It may even be a mixture of an asset and cash and, so long as creditors find the offer agreeable, the offer stands a good chance of being accepted.
In essence, if your creditors believe the lump sum provides them with a better financial return than they would receive through your bankruptcy, they'll be interested.
What are the advantages?
The benefits of the Full and Final Settlement IVA are significant to all parties.
It removes your debt burden in one fell swoop whilst crystallising a debt write-off in the process.
Whereas your creditors have the advantage of receiving their money in one payment, which they prefer, and the IVA fees are lower. Which means they get to keep more of the funds being offered.
How much should I offer?
This is an extremely difficult question to answer with any level of certainty as the amount required to clear a certain debt level 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.
Creditors will pay all of the IVA fees out of the funds you provide, so in reality the offer you put forward will be reduced further in their eyes.
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.
You could use the slide calculator on the side of this page to give you a bench mark, but if you would like a more accurate assessment of your circumstances, simply call one of the team on 0800 856 8569.