The length of an IVA is normally 5 years. You are required to make 60 monthly payments. However there are certain circumstances where this can be reduced or extended.
- How long does a standard IVA last?
- Can the length of an IVA be extended?
- Can it be reduced by settling the Arrangement early?
- Is the length affected if you are a home owner?
How long does an IVA last?
A standard monthly payment IVA lasts for 5 years. Over this time you are required to make 60 monthly payments towards your debt.
This period is not legally prescribed. In addition it is not dependent on how much you owe. It has simply become a generally accepted standard length for most commercial creditors.
After all of the payments have been completed it is possible that some of the debt included in the Arrangement will remain outstanding. This is then written off by the creditors.
Can the Length of an IVA be extended?
The length of an IVA can be extended past 5 years. One of the most common reasons for this is if payments are missed. These will then need to be made up by adding them at the end. As such the length of the agreement is extended.
With prior agreement from your Insolvency Practitioner it is possible to take a payment holiday during an IVA. However any payments missed still have to be paid and are added to the end.
Another reason for an IVA to be extended is if the monthly payments are reduced. This may be possible after a fall in income or increase in living expenses. However it will normally result in an extension of the Arrangement for a further 12 months.
It is possible for a creditor to demand an IVA lasts longer than 12 months. If the creditor is large they may be able to force this by only accepting the Proposal if the Arrangement lasts for 6 or even 7 years.
Can the Length of an IVA be reduced by settling early?
It is possible to settle an IVA early if a third party can offer a lump sum payment on your behalf. The amount required is based on what you would otherwise have paid less a modest discount.
If you are paying £250/mth into the Arrangement and have 3 years of payments to go you still owe £9000 (£250 x 36). It may therefore be possible to settle early by offering a lump sum of £8000.
Sometimes an IVA can be settled early for significantly less than would otherwise have been paid. However this is normally only possible if your circumstances have changed significantly and you are no longer able to sustain the agreed payments.
The payments you make into an IVA can increase if your circumstances improve. Where this happens the length of the Arrangement does not reduce. The amount that is repaid to creditors simply increases.
Is the Length of an IVA affected if you are a home owner?
The standard length of an IVA remains 60 months if you are a home owner. However this period could be extended depending on the qualifying equity in your property and your ability to release this.
Homeowners are required to try and release equity from their property for the benefit of their creditors. This is normally required in the 5th year of the Arrangement.
You may be unable to release the equity in your property. Generally speaking this would be because your poor credit rating means that no mortgage or secured loan options are available.
In these circumstances the requirement to release equity is ignored. However the payments that have to be made continue for an additional 12 months. As a result the length of the Arrangement is extended from 5-6 years.