How long does an IVA last?
IVAs are often praised as an insolvency solution which allows users to clear all of their debts in a relatively short space of time. What is sometimes unclear, though, is exactly how long this time-frame is. Exactly how long an IVA (Individual Voluntary Arrangement) will last will depend on a person’s individual circumstances. Below we outline the main factors which determine how long an IVA would be likely to last for you.
Standard IVA Length
IVAs were established under the Insolvency Act of 1986, which states that they can last anywhere from three months to seven years. However, most IVAs have a term of 60 months (five years).
Are you a Homeowner?
If you own property, you may be required to remortgage it as part of the terms of your IVA. This will happen in the IVA’s final year. First of all, your home will be valued to determine how much equity is in it – this is the profit you would make from selling the property, after the mortgage was paid off. If this valuation shows that there is more than £5,000 of equity in your home, you may have to remortgage it in order to complete your IVA. This is not always the case, though. If the new mortgage would have a longer term than the original, or extend beyond your state retirement age, you would not be expected to remortgage the property.
Crucially, IVAs do not involve selling your home. The fact that IVAs do not require homeowners to sell their property is one of their key appeals, especially compared to bankruptcy, which can put your home at risk. Remortgaging your home will set you back in the process of paying off your mortgage, but for people considering IVAs, this tends to be worth it to clear their unsecured debt.
If you are not a home owner, or your home cannot be remortgaged, you will be required to pay your monthly IVA contributions for an extra year instead, meaning the IVA would last six years rather than the standard five.
Do you have a Lump Sum available?
If you have a lump sum of money available, whether through a windfall, the sale of an asset, or a third party, you may choose what is known as a ‘full and final IVA’. This involves offering your creditors a one-off lump sum payment in exchange for your debts being written off. Creditors may accept this offer if you are unlikely to be able to repay the debt in full, and your financial circumstances are not likely to improve in the near future.
If you successfully negotiate this payment, your debts will be cleared much more quickly than with a standard IVA. How long creditors take to respond to your offer will vary, so how long this process takes will very much vary on a case to case basis. If you do have a lump sum available, it may be preferable to clear your debts in this way, though you may need professional help when it comes to negotiating a settlement with your creditors.
A windfall is a large amount of money which you receive unexpectedly. For instance it might be an inheritance, winning the lottery, or simply a gift. If you receive a windfall during the course of your IVA, you will have to put it towards repaying your debts under what is known as the Windfall Clause. There are some exceptions when it comes to what kind of windfall payments can be taken by creditors. Neither redundancy pay nor insurance pay outs can be claimed.
Usually, receiving a windfall will have no implications for the length of your IVA. You will be expected to pay it to your IP, and continue the original terms of the IVA. However, if the sum is large enough to clear all of your original debts, as well as cover your IP’s fees, your IVA can end early. After these costs have been met, any remaining money will be passed back to you, and the IVA will be considered completed.
For more advice about what you can expect from an IVA, you can speak to a friendly advisor at Creditfix by calling 0808 2085 198.