The assumption so far in this book is that the IVA’s we have been referring to are fixed in length (usually 5 years) and based on affordable monthly payments. But there is a different sort of IVA that is based on a lump sum offer. This applies to someone who can’t afford any meaningful monthly payments (i.e. all their income is needed to cover essential household and personal expenses) but they do have access to a lump sum. This sum of money will not be enough to clear all their debts (or that’s what they should do!), but it is enough to make a reasonable offer to the creditors.
The Insolvency Practitioner will want to know where the lump sum has come from. It could be from the sale of an asset, from a redundancy package or a family loan. And the whole of the lump sum has to be offered. The principle of an IVA is that we are seen to be doing the best we can to pay back as much as we can of the debt. If we win £10,000 on the lottery, we can’t then offer £5000 of it as a lump sum IVA. And if we have £200/month disposable income and win the lottery – we can’t offer the lottery win instead of the monthly payment. Creditors will want both up to the full amount of the debt after Insolvency Practitioner fees.
But where possible, a Full and Final IVA has some obvious benefits. Once the IVA is signed off we are debt free rather than waiting 5 or 6 years to be debt free. If our financial circumstances change once the lump sum IVA is completed – then it will make no difference. Our finances are not being monitored any longer. The fact that we have done an IVA will remain on our credit file and affect our credit rating for the full 6 years – but there will be no monthly payments even if our income drastically increases.
It may just be possible to propose a Full and Final IVA even if we do have a modest disposable income. See Jane’s story below of such an example. Someone may be looking at a £200/month IVA - but are a little concerned about maintaining IVA payments due to their irregular income flow or uncertainty about their job security, health or threat of reducing income. Not all of us have wealthy and generous relatives, but if we do – it is possible to borrow (say) £12000 (= £200/month for 5 years) and repay the £200 monthly to our relative. Thus our outgoings have increased and the disposable income has disappeared. Often a family arrangement to repay a debt can be more flexible than the demands of a monthly payment to our IVA.