Full and Final IVA
A Full and Final IVA is, quite simply, an IVA where a single payment is made as a full and final settlement to all the debts contained in the IVA.
The vast majority of IVAs have a duration of 5 years, where monthly contributions are paid into the IVA for the full duration of the agreement, but the full and final IVA is literally a single payment.
Exploring The Full & Final IVA
Being much less common than contribution based IVAs, the full and final IVA option is often overlooked, but it should be explored if you believe it could be the correct solution for you.
Your best offer
For a full and final IVA to stand a good chance of being accepted by creditors, the offer should provide a better financial return to that which creditors would otherwise expect from the applicant's Bankruptcy.
Detailed in the IVA proposal will be a comparison between the financial return from bankruptcy and that of the proposed IVA, so it's important that the creditors can see they will be financially better off if they accept the IVA.
Similarly, creditors will need to be sure that there isn't a better offer available to them through a contribution based IVA. As a result, the applicant will need to demonstrate they have very little or no disposable income, removing the option of the contribution based IVA.
3rd party funds
In most cases, the money for a full and final IVA settlement will be provided by a 3rd party, where a lump sum is gifted to the applicant on the condition the IVA is accepted by the creditors.
By making the offer conditional in this way, the funds remain protected so, if the creditors reject the IVA offer, the funds still belong to the 3rd party and can't be seize as an asset of the applicant.
Whilst it doesn't always have to be 3rd party funds, it's usually seen as the 'cleanest' way to a full and final IVA offer.
Creditors find the introduction of 3rd party funds is very tempting, as these are funds they wouldn't have access to if they made the applicant bankrupt.
Sale of an asset
Another popular way to raise funds for a full and final settlement IVA is by agreeing to sell an asset, on the condition the IVA is accepted as full and final settlement.
Creditors know that forcing a sale of a property through the bankruptcy process creates a tremendous amount of costs, which could easily eat up any equitable value. They know they can often recover more of their money by agreeing to an amicable settlement.
Full & Final IVA Scenarios
The Full and Final IVA option really works when the applicant has a sizable lump sum at their disposal and their personal circumstances indicate to creditors that other formal action will be less fruitful.
Below are some of the classic scenarios that naturally suggest a full and final settlement IVA would be worth considering.
- Emigration:
If you are intending to leave the country for the long term and would prefer to reach an agreement with your creditors before you leave, the full and final IVA will allow you to make a fresh start. - Retirement:
If you're soon to be retiring and want to start retirement with a clean slate, then the full and final settlement IVA will give you that peace of mind. Once agreed, creditors can't come back for more money at a later date as the IVA legally obliges them to write-off any outstanding balances. - Redundancy:
Those people who face being made redundant could consider using some of their redundancy package to clear their unsecured debts through the full and final settlement IVA. - Relocation:
If you are relocating through work, where you'll be selling your property and releasing the equity. Reaching a full and final settlement with your creditors could be an ideal way to make your equity go further. This option is particularly viable if your new income is going to be lower, or your new living costs are going to be higher than before, therefore removing your ability to afford your ongoing debt repayments.
In most of the above scenarios, creditors would realise that a contribution IVA just wasn't appropriate.
IVA budget requirements
As part of the full and final IVA process, creditors will get a chance to scrutinise an applicant's expenditure and they'll be looking for opportunities to reduce it wherever it is considered excessive.
Reducing the expenditure in this manner has the effect of increasing the monthly disposable income which would be available in a contribution based IVA.
This could potentially undermine the viability of a full and final settlement IVA for the reasons explained above, so it's extremely important to ensure that all levels of expenditure are within reasonable limits and, when they are above the standard guideline figures, that the expenditure can be shown as being essential to requirements.
Fortunately, we are dealing with creditors expectations on a daily basis and are very familiar with what they consider to be acceptable expenditure levels. Consequently, we are able to avoid the problems over-budgeting can bring.
So, why not ask us to help you.
Professional IVA Advice
If you are considering proposing a full and final IVA, it is essential you take professional advice at the earliest opportunity.
We can give you the guidance and advice you'll need to ensure everything is prepared correctly, which will give your IVA the best chance of being accepted.
Call us on 0800 088 7502 or simply complete this form and one of our IVA advisers will call you at your preferred time.
