Final Settlement IVA, Solve your debt problem with a single lump sum payment

by admin on 27 September 2007

The majority of IVAs, are monthly repayment IVAs, which, as described in the IVA facts article, involve the debt being paid over a five year period. An alternative, where the debt is settled once and for all by the payment of a lump sum is called a final settlement or lump sum IVA. This is attractive option to your creditors when you can obtain a lump sum but have low disposable income making a repayment IVA difficult. The money for the lump sum can be obtained from sympathetic relatives or via a re-mortgage of the property.
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There are two main obvious difficulties with the full and final settlement IVA. The first is encountered in raising the lump sum for the IVA. Either you have to ask a relative (not the most pleasant of tasks) or you have to re-mortgage. The danger in re-mortgaging is that you expose yourself to the risk of going bankrupt later down the line should, for example higher interest rates lead to higher monthly mortgage payments and squeeze your disposable income.

The second difficulty is that your proposal for a full and final settlement IVA is only likely to be accepted by your creditors if they believe that this will be a better deal for them than if you did a repayment IVA. But you want the best deal for you, so if the bank decides that the full and final settlement IVA is better for them, does this mean that it is worse for you? Not necessarily. A contributory factor to the bank favoring your final settlement proposal above the repayment IVA is that the IVA fees are substantially reduced. This results in the bank achieving a higher return on the debt than if you did a repayment IVA, and at no cost to you.

Nevertheless it could be the case that a repayment IVA is better. Whatever you decide in such a case depends on your circumstances, like, for example, whether you think you could stay the course for five years in a repayment IVA or not. Consider all options including the full and final settlement option – there are still some good reasons for considering it – as noted in the IVA secrets section.

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