At Debt Advice You Can Trust one of the debt solutions we specialise in is individual voluntary arrangements (IVAs). These five to six year agreements are well known and heavily advertised online.
IVAs can be a great debt solution for some, and the advantages include the fact that in most IVAs you do get a portion of your debt written off with the agreement of your creditors. However, there is another form of IVA that is less well known; the Lump Sum IVA.
How do lump sum IVAs work?
In order to get a lump sum IVA you need to have a lump sum of money available. The lump sum may come from a redundancy payment, a windfall, or may be offered by a third party such as a partner, employer, parent or relative.
If the money comes from a third-party it should be available as one off payment to lenders to exclusively pay off your debt.
Full and final settlement
Many people in debt have the idea to make a lower payment to their lenders in the hope that the individual lenders agree to a reduce amount, this is sometimes known as a ‘full and final settlement’ offer. The problem in this approach begins when you have multiple lenders and only a limited amount of money to clear them all.
Lenders are unlikely to write off any debt for a full and final settlement offer if your other lenders have played hardball and are getting their payment in full without any ‘discount’. This is why a lump sum IVA is a much safer way of making a final settlement with all your lenders. As each lender gets the same pence in the pound return, and they all agree to this together.
Another advantage of the Lump Sum IVA is that like any other IVA agreement it’s legally binding on your lenders, so once they agree to the Lump Sum IVA they can’t change their minds later and decide to chase any debt left outstanding (which is what often happens with full and final settlement offers).
5 reasons a Lump Sum IVA is a good idea
- A lump sum IVA legally protects you from further action from lenders
- Lump sum IVAs can be completed in a matter of weeks
- The offer is made legally to all your lenders
- You don’t need to negotiate with lenders
- It’s a one-time offer and lenders have the choice to accept or not
- It gives you an instant fresh start
- A percentage of your debt will be written off
We’ve blogged before about Lump Sum IVAs being the quickest way out of debt and we also discussed the impact on your credit rating (it will be clear, six years after the IVA has been given the go ahead). One thing we wanted to discuss was how your lenders view a lump sum IVA.
It’s our experience that lenders are receptive to lump sum IVAs as a good debt solution, particularly when the lump sum comes from a one-off payment from a third party.
Lenders know that this money would not normally be available so as long as the pence in the £ return is reasonable lenders are happy to consider lump sum IVAs rather than wait many years to get the whole amount of money owed back.
Lender attitude appears to be that any money offered in the here and now is better than waiting. This makes Lump Sum IVAs a popular option for people who owe money and who have been offered, or come into possession of, a lump sum.
How do I get a lump sum IVA?
If you have a lump sum available to you, but it’s not enough money to pay off all your debt in full, a Lump Sum IVA could be the best debt solution. Any IVA is a legal document, put together under the supervision of an Insolvency Practitioner (IP).
First, the legal document is drafted by the IP who will list all your debts and your current state of affairs. The document will be sent to all your lenders and it will contain details of your lump sum offer, this will include the pence in the £ return to your lenders.
Lenders will view the document and at a set time, they will vote to say whether they accept the Lump Sum IVA or not. If they do accept, the IVA will become legally binding.
Having an IVA or Lump Sum IVA accepted means that your creditors can no longer chase you, contact you, or take any further legal action against you as long as you follow up the plan outlined within the IVA proposal.
The IP would take the lump sum and distribute it to your creditors minus the IP fees and charges. All IVA providers charge fees for IVAs (this includes debt charities such as StepChange and National Debt Line). No IVA fees should be charged upfront and all fees are taken from payments made into the IVA with the agreement of your lenders and your chosen IP.
I have a lump sum, is a lump sum IVA right for me?
If you want to find out if a lump sum IVA is right for you, please contact Debt Advice You Can Trust on 0800 231 5001, you can email us now also. Our expert advisors are happy to discuss Lump Sum IVAs or other debt solutions.