Can you pay an IVA off early

You can pay your IVA early. This is achieved by offering a one‑off cash payment. However, it is not possible to pay your IVA more quickly by simply increasing your regular monthly payments.

Key takeaways

• The cash amount you will need to pay off your IVA early will normally have to be equal to the total of your remaining monthly payments.

• After you pay your IVA off, the Arrangement is over. This means you will have no more monthly payments or annual reviews. You can keep all of the additional money you subsequently earn.

• Your credit rating does not improve as a result of your early payment. The IVA record will stay on your file for 6 years from the start date regardless.

• The cash lump sum you need could come from a third party, remortgaging your property to release equity or a pension withdrawal.

• You can’t use a personal windfall (inheritance, compensation, redundancy) to pay your IVA early because these funds would have to be paid into the Arrangement regardless.

Use this guide to find out more about how to pay your IVA off early, how much it will cost and where the money can come from.

Contents

How do you pay your IVA off early?

Your IVA doesn’t have to last 5-6 years. It is possible to pay it off early if you want.

You can do this by offering to pay a one off cash lump sum instead of continuing with the monthly payments.

Steps to paying off your IVA early with a lump sum:

• 1st – Get an agreement in writing with your IVA Company on how much you will have to pay.
• 2nd – Pay the agreed amount to your IVA Company.
• 3rd – Stop making your monthly payments.
• 4th – Your IVA Company will then issue you with a completion certificate and/or letter.

Your IVA is then finished. It is then known as completed.

It is not possible to pay your IVA early by increasing your monthly payment amount. This is because if your payment goes up the result will simply be that you repay more of your debt overall.

How much will it cost to pay your IVA off?

The main question of course is how much will it take to pay your IVA off?

Generally speaking you will have to pay an amount which is equal to the sum of your remaining monthly payments.

For example:
If you are currently paying £200/mth into the Arrangement and you have 30 months left to pay, the cash lump you will need to offer is £6000 (£200 x 30).

This means that you will not necessarily save any money if you pay an IVA off early. You will ultimately pay the same as if you have continued with your current monthly payments.

You may be able to offer slightly less than the total of your remaining payments to settle your IVA if your circumstances have got worse and you can no longer afford to pay them.

What benefits will you get if you pay your IVA off early?

If the lump sum you need to pay an IVA off early is equal to the sum of your remaining monthly payments, then why bother?

This is a very good question. The reason is that you could realise some significant benefits:

No more monthly payments

After you have paid the agreed lump sum, you no longer have to make additional monthly payments because you have paid everything you need to.

If your income has permanently fallen, the worry of having to try and keep your IVA payments going will no longer be there.

Future pay increases are yours to keep

Once your IVA is complete, you are no longer bound by its restrictions. This means if your income increases in the future, all the extra money you earn is yours to keep.

You no longer have to pay 50% of any overtime you earn into your IVA because the rule no longer applies to you. If you get a pay rise, you don’t have to report it to your IVA Company.  

Any windfalls you subsequently receive are yours to keep

After you pay your IVA off early, you can keep any windfalls you get in the future.

For example:
If you are left an inheritance after your IVA is complete, the money is yours. You can also keep 100% of any payment you receive if you are made redundant.

In the event you get a windfall before you have received your completion certificate, then technically, you may still be required to pay it into the Arrangement.

After you pay the agreed cash lump sum into your IVA, it is NOT formally over until you have received your completion certificate / confirmation letter from your IVA company.

Does your credit rating get better after you pay off your IVA early?

When you pay off your IVA early, your credit rating does not improve.

The reason for this is that the IVA record will still remain on your credit file and continue to negatively affect your credit score.

It is not removed at the same time as you pay your IVA early because it is a legal requirement for the record to remain on your IVA for 6 years from the start date.

When you pay your IVA early, it does not reduce this time.

For this reason, trying to repair your credit score should not be the primary reason you pay off your IVA.

Where can the money to pay off your IVA come from?

The cash lump sum required to pay an IVA early could come from a number of sources.

• A third party (perhaps a family member or friend) offers the funds. You can always agree to pay them back after your IVA is over.

• Remortgaging your property to release equity. This option is for home owners. It is entirely dependent on your ability to raise additional funds from your property which may or may not be possible.

• Withdraw cash from your pension (of you are over 55 years of age). Under the terms of your IVA you don’t have to raise funds from your pension. This means that as such as long as you agree it in advance with your IVA Company, you can take a lump sum from your pension to pay off your IVA.

Can you pay your IVA early with a windfall?

You can’t pay an IVA off early with cash that you have received as a personal windfall.

The reason for this is that under the terms of your IVA, you always have to pay a windfall to your IVA Company as well as continuing to make your ongoing monthly payments.

Examples of a personal windfall are things like:

• An inheritance receipt
• Compensation for a legal claim
• A redundancy payment

If you lose your job, under the standard IVA rules, you can keep part of your redundancy money – the equivalent of 6 months of your take home pay. However, you have to pay anything over and above this into the Arrangement.

The only time your IVA would be paid off early with a windfall is where you have received a sufficiently large sum to pay off 100% of your original debt plus your IVA Company fees. This is because the Arrangement would then be automatically completed.