How can I get out of an IVA early?
Summary: This article discussed the circumstances around ending an IVA early, and what the creditors will expect if such a proposal is made.
An individual Voluntary Agreement (IVA) is a popular alternative to bankruptcy, which allows an individual to repay their creditors a fixed monthly payment based on what they can reasonably afford after essential expenditure. The duration of an IVA is usually for 5 years, though may vary based on individual circumstances. It is a legally binding agreement with the creditors of the included debt, and the terms of the agreement will see that the amount repaid to the creditors over the period will often be less than the total amount owed, with the remaining amount written off after the IVA is successfully completed.
Five years is a long time, can I end an IVA early?
All IVAs will include what is known as a 'variation clause', whereby if the creditors are in agreement could see the IVA completed early. However, it is important to understand that whilst in an IVA, creditors are still entitled to the total amount of debt owed, so by ending an IVA early, they could demand full repayment.
How can I end an IVA early?
There are a number of possible ways an IVA could be ended early, assuming the creditors agree.
• Make an offer
- The terms of an IVA will usually see creditors accept a total repayment which is lower in value than the amount of debt owed, providing it is more than they would receive if the individual is declared bankrupt. It may be possible that, if an offer is made to the creditors that see them receive a higher percentage of the debt owed, they may accept an early settlement. This offer would be presented by the IVA supervisor at a creditors meeting where it would need to be verified.
• Full settlement of the outstanding debt
- It is possible that the individual could have a windfall, such as a lottery win or an inheritance. In these instances, it is vital that the IVA supervisor is notified, as it is likely that some of this additional income would need to be used towards the IVA. The IVA supervisor would call a variation meeting with the creditors and propose a new repayment structure. If the windfall is sufficient, and the full value of the debt can be repaid, then the creditors may agree to end the IVA early pending the settlement. It may also be possible to re-mortgage a property for the same result.
• Declare bankruptcy
- Whilst not recommended just to get out of an IVA, if circumstances change significantly, resulting in difficulties repaying the agreed monthly amount in an IVA, the individual could file for bankruptcy. It is important to bear in mind that this could have implications for homeowners.
Do the creditors have to accept early settlement?
Creditors do not have to accept early settlement. As mentioned above, creditors are solely interested in recouping as much of the outstanding debt as possible, therefore if an offer is not in their interest, they are likely to decline. Furthermore, any settlement considered would be based on the total debt outstanding and not the reduced payment of the IVA, therefore the individual may be better off remaining in the IVA for the duration.