Settling an IVA early with a lump sum is beneficial for both the debtor as they will pay less overall and creditors because they receive their return much sooner. We consider whether such a lump sum can be made available from a windfall.

Payments into an individual voluntary arrangement (IVA) will normally last for five years.

However, if during the course of your IVA a lump sum of money can be made available, this can be offered to your creditors to settle the outstanding debt immediately leaving no further payments outstanding.

Your creditors will normally consider favourably a lump sum settlement because they receive money immediately rather than having to wait for the IVA to run its course.

A windfall cannot normally be used
 
The lump sum offer has to be reasonable based on the amount that the creditors would otherwise have been paid.

As such, it is no good offering a lump sum of £1000 if the creditors could wait for a further three years and receive £12,000. In this situation, a lump sum of £8000 might be appropriate.

But the key question is where would the lump sum come from?

Normally it must come from a third party - money that would not otherwise have been available to your creditors. As such, lump sums are often made as gifts or loans from friends or family.

Importantly, if you receive a windfall such as an inheritance payment or even a lottery win this can not be used to make a lump sum offer.

A windfall is money that you would have received irrespective of wanting to settle your IVA. These types of funds must always be paid into your IVA to increase the return to your creditors and you will have to continue making your monthly payments unless the windfall was enough to repay your total debt in full.

Paying back a lump sum

Once your IVA has been settled, the agreement comes to an end and you are debt free. There is no need to make any further monthly payments

This means that the disposable income that you were paying into your IVA is now yours to do with as you wish. If appropriate, you can therefore use this spare money to repay the person who made the lump sum available for you.

If you are in an IVA and believe that a lump sum can be made available, it is always sensible to see if there is an option to settle your arrangement early.

This will benefit you because you will ultimately pay less back to your creditors and will benefit your creditors because they receive a return much earlier.

However a lump sum cannot come from a windfall as you would have to pay this into your IVA regardless.
 
It may also be of interest to note that a lump sum can generally be offered at any time during an IVA. If such a sum can be made available at the beginning of the arrangement, it is even possible to settle your IVA on day one and make no further monthly payments at all.

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