How does a Lump Sum IVA work and under what circumstances would a Lump Sum IVA be a realistic option for me to put to my creditors?
Well, Lump Sum IVAs are really not at all common. This is because the circumstances that need to be in place before a Lump Sum IVA actually becomes a viable option are really quite rare.
When a debtor puts an IVA proposal to their creditors they have to be able to demonstrate that the IVA constitutes the ‘Best’ offer the debtor can afford to make to their creditors.
Normally this would be in the form of 60 regular payments, paid each month for 5 years. If there is any property owned by the debtor then the debtor would have to undertake to release any equity that could be accessed through a re-mortgage before the end of the IVA. These are pretty standard IVA terms, and therefore in most cases give the creditors the best chance of maximum return for the debts they are owed.
In cases where there is no longer an ability for the debtor to generate a monthly IVA payment, the typical IVA ceases to be an option.
However, if the debtor has a benefactor, or has a property which can be sold or re-mortgaged, which would provide enough of a lump sum to be the equivalent to what the creditors would have expected through 60 payments, then creditors can be tempted to accept the offer.
Lump sum IVAs are most common where a debtor’s ability to continue earning a regular income is removed. Retirement and redundancy top the list, where people have used their severance packages to tidy up their debts before retirement, but also people down sizing their property before retirement is another favourite.
It must be said that 3rd party funds also constitute a significant number of cases where lump sum offers are accepted, where perhaps parents use some of their equity to help a settle their offspring’s debts.
Other advantages that the lump sum IVA brings are the not insignificant reduction in fees for the creditors. This is due to the fact that the IVA will only be supervised by the insolvency practitioner for 1 year, and not the normal 5 years,
Creditors also view the lump sum IVA as the ‘bird in the hand’ option, which returns a better deal for them than the potential bankruptcy option that would otherwise have to be taken by the debtor, so all in all, not a bad option for them really.
What makes the lump sum IVA so unusual is the fact that there is such a small envelope of circumstances where it works, not just for the creditors, but also for the debtor.
It must also be said that in most cases where an offer of a lump sum IVA using 3rd party funds would be gratefully accepted by the creditors, the debtor would in most circumstances be actually much better off in declaring themselves bankrupt, as this would offer the debtor the quickest and cheapest way to become debt free, and of course save the 3rd party’s money from being passed to the creditors.
If you would like to discuss your circumstances with an IVA specialist, to see whether or not a Lump Sum IVA may be a suitable soultion for you, why don’t you call freefone 0800 088 7503 now, or leave your details on the form on the side of this page and we’ll call you.
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