An IVA is an individual voluntary agreement where you agree to pay so much to your creditors every month. An IVA lasts for five years, at the end of the five year period; everything you owe can be wiped clean, although this is not a guaranteed outcome.
IVAs are generally meant for people who are in serious debt e.g. have debt problems of more than £15000. The IVA is a method of clearing your debt without actually declaring yourself bankrupt. The monthly payments that the debtor makes are usually made through an insolvency practitioner who then pays the creditors. The IVA is often referred to as a full and final settlement or lump sum IVA, however not all IVA cases will be suited to the lump sum, Whether you are eligible for the full and final settlement process is assessed through a number of things as outlined below.
If you want to be considered for a lump sum IVA then you must fulfil the basic criteria of having more than £15000 in unsecured debts, usually owed to a minimum of four creditors. You must also have little, if any disposable income with which to pay your debts. You also need to have sufficient equity in a property or to have someone who is willing to act as your benefactor. The lump sum is calculated as twenty five percent of your total debts with enough left over to pay the costs to the creditors. These are the things that are needed to make a final settlement IVA.
Should you apply for an IVA then an insolvency practitioner is appointed to act on your behalf. The practitioner will need all of the paperwork that relates to your debts before they can put any kind of proposition to your creditors. He or she may ask for the settlement money to be placed in their client’s account while they see to the details of setting up an IVA.
If the creditors agree to the settlement then instead of making monthly payments for five years to the creditors, the lump sum is transferred to the creditor’s account and the agreement is finalised on the basis of this one payment. Any money that is left owing after this payment is then written off by the creditors. IVAs are binding, which means that once the creditors have accepted the payment they can no longer chase you for the debt because it is legally settled.
Creditors do receive some of their money back through a final settlement IVA and they will pay less money to the third party handling the process, which means they get more of the debt. However, IVAs will not suit everyone, and final settlement IVAs have to include all of the above to work.
