Sometimes referred to as a “one off IVA”, a full and final IVA settlement is where a one-off partial payment is offered and agreed to by your creditors in exchange of the full and final settlement of all debts. Any debt remaining is then written off. The Individual Voluntary Arrangement (IVA) is used as a mechanism to ensure creditors are bound by the agreement.

When is a full and final IVA settlement possible?

Full and final settlements are possible for only a small number of people who have access to a lump sum of money, but do not have sufficient ongoing disposable income to make continuous monthly payments. In these cases, the one off lump sum payment may be considered more worthwhile to both debtor and creditor than a debt repayment scheme where monthly payments are so low, it would to take too long to pay back. One example of a case where a lump sum IVA might be possible is retirement and redundancy, where the individual uses redundancy pay to settle their debts before retirement.

When to make a full and final IVA settlement

A full and final settlement can be offered to your creditors as part of your initial IVA proposal or at any point during your IVA to bring it to an early completion. If you are already in an IVA and want to propose a full and final settlement to your creditors, you will need to speak to your IVA supervisor about changing the terms of your agreement. Your Supervisor will advise you but reserves the right not to put your proposal to creditors if he/she feels it is unlikely to be accepted to creditors or is otherwise unreasonable.

As with the process of standard IVA proposals, you will still need approval by 75% of your creditors (by value of the debt) in order for a Full and Final IVA settlement to be accepted. It is unlikely that your creditors will accept a “full and final” IVA settlement if it substantially reduces the total you are offering to repay and you can still afford to make monthly contributions.

Creditors are also less likely to look favourably on a settlement of this type early in the life of an IVA. ClearDebt sometimes succeeds in getting creditors to agree to IVAs with very low returns (less than 25 pence in the pound). In these circumstances, a full and final offer that substantially lowers the amount creditors get is very unlikely to be accepted – especially if it approaches the sum that might be realisable through bankruptcy.

Creditors look most favourably on full and final IVA settlements when they represent an increased or similar total sum repaid early by the debtor, especially when they feel that the IVA might otherwise fail, but they are unlikely to be accepted if they don’t represent an increase on what might be achieved through other means (for example, bankruptcy).

Ways people often fund full and final IVA settlement offers

Examples of how people have raised money to offer their creditors a full and final IVA settlement include:

• Sales of assets
• Releasing equity from property, for example by remortgaging, equity release or home reversions
• Gift from family or friends
• Inheritance or other windfalls

It’s important to note that you are not allowed to do is take out a conventional unsecured loan to raise the money in order to fund your full and final settlement offer.

It’s also worth noting that any financial arrangement between family/friends would require written confirmation that the money does not need to be repaid.

Benefits of a full and final IVA settlement

For people who are already in an IVA, full and final IVA settlements allow them to complete their IVAs early due to the introduction of capital into the pot. For anybody who isn’t already in an IVA, full and final IVAs are a way to clear debts without having to go through the 5-year process of a standard IVA. From the creditor perspective, full and final settlement offers are a way for them to get their money sooner.