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Get a Full and Final Settlement with your Creditors

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Are you unable to pay your creditors back due to financial difficulties? This is a situation that a lot of people face at some point. You would know how much stress it can put on a person if you have gone through this. And, you would want some kind of relief, preferably a way to write off the amount that you owe. In that case, you don’t have to worry at all, as there are many options available to you, and a iva full and final settlement process is easily one of the simplest ones among them. It can be a viable option under some circumstances. So, there are specific details that you need to know to be able to come to a clear decision.

If you are in an IVA and considering making an offer of ‘Full and Final Settlement IVA‘ to your creditors, it is quite natural to try and calculate the minimum amount needed to bring the IVA to an early settlement, whilst ensuring the offer is large enough to be acceptable to your creditors.

What is a Full and Final Settlement?

You might still be able to pay a part of the debt if you can’t afford the total amount. Let’s suppose you have enough savings to do that, or you have acquired that amount of money. In such a case, you can offer a payment of a lump sum to your creditors. They will have to write off the remaining amount after you pay them what you offered. This is called a full and final settlement. Even though it is a good option, it might now always be the best for you. In addition to that, there are some considerations you must make before going for a settlement.

How much would you have to pay?

This amount will be less than the original one, but only up to a certain limit. You can offer the amount that you can afford to pay. Calculate the total amount that you owe and the overall percentage of it that you can repay. You must arrange for paying at least 30% of what you owe, any amount below that probably won’t be accepted.

In such a case, it’ll be better that you go for other options. Now, suppose you have multiple creditors and have arranged to pay 50% of the total amount. In that case, you must offer them 50% of each of their debt.

What kind of Debts can you write off with this arrangement?

A great thing about a full and final settlement is that it has no limitations on the type of debt that can be applied. The entire debts, both government and private, can be written off using this arrangement. So, this is mainly a matter of concern whether the offer will be accepted by your creditors.

How does full and final settlement iva work?

Let’s assume you have taken a certain amount of money as a loan from a bank or finance company. They would charge a specific amount of interest each month on the principal. Now, due to financial problems, you are unable to pay regularly. This might incur you more charges for late repayment, based on the terms you had agreed upon. 

In that case, it’ll become harder for you to free yourself from the debt. So, you’re in a tight situation and would look for a way out. An Individual Voluntary Arrangement (IVA) is a legal method of resolving debt problems. It allows a person to repay a percentage of their unsecured debt to their creditors in affordable monthly installments over a fixed term, usually around five years.

Now, it’s not as simple as it might seem, and there are many aspects that you must consider. Also, it’s not always the best option that you’ve got. Moreover, you can proceed with this arrangement only if the lenders give their consent. So, you would have to convince them that this is a good option, which can be quite difficult in some cases. If done right, it’ll only be a matter of time before you’re relieved from the debt.

How do you request it?

When you miss instalments, you’ll start receiving reminders. They would contain the details of how much you owe and additional charges you have to pay if any. Similarly, to get a full and final settlement, you have to write to them and make them an offer. You have to mention all the details of the arrangement that you want with them. Also, you have to make it as convincing as possible. Otherwise, if they think there are other ways to recover the money, they will follow that. This includes taking you to court, though not before they’ve tried all other methods.

How does IVA full and final settlement process work?

If you become aware you will be coming into some money you will need to talk to a national debt solutions company. They will advise you whether the money you have is enough to be considered by your creditors and they will help you put together the proposal for your full and final IVA.

If you do put forward a lump sum IVA, your creditors in question will review your proposal and will consider the financial return from bankruptcy and that of the suggested IVA payment.

How much should you offer them?

This question would probably be one of the first ones to come to your mind. There is no fixed amount that you are required to offer to them. The entire arrangement depends on the terms set between you and your creditors. However, there certainly is a right amount that you need to offer them. After all, they’re not going to accept just anything you offer them. Also, they generally do have other options to recover the money. So, you must assume that you’ll have to give them a suitable amount to make them accept the offer. 

It depends quite a lot on your situation. Suppose you’re going through a financial situation where you won’t be able to pay the full amount by any means. On top of that, you also don’t have any property for selling, for which you can clear the full debt. They might be convinced that they should accept your offer in such cases. After all, it’s better to recover some of the money rather than getting none at all.

However, you must offer more than 50% of the amount in other circumstances. You must keep it as high as possible above this percentage. Then, there might be a good chance that they accept your offer.

When should I consider a full and final IVA?

This decision could be based on a number of factors, but people most commonly decide to go ahead with a full and final IVA for the following reasons:

  • Retirement – No one wants to retire with hefty debts over their heads and therefore settling on an IVA with a single payment is a good way of ensuring they can start again credit wise once they leave employment.
  • Emigration – If you are planning on leaving the country to live abroad it’s always a good idea to tie up all debts at home and this type of settlement could work in your favour.
  • Redundancy – Being made redundant is tough at the best of times but being made redundant with an IVA in place and debts to clear is less than ideal. Which is why many people who receive a lump sum from their former employer will use this to propose a full and final IVA.

Full and final IVAs are ideal for people who have access to a sum of money but won’t have the income to set up a repayment plan. They work favorably for everyone involved, it allows those in debt to reduce the time they spend paying money to creditors and it works to the creditors’ advantage too, simply because they receive their money sooner.

How do you ensure that your offer is accepted?

As we have seen, there aren’t any fixed ways to get a positive result for this arrangement. So, you must work it out in a way that ensures your success. Further, the offer you make and the details you give plays a crucial role. Apart from the amount, you must also add the details of earnings and expenditure. That would make them understand your situation much better, and they would be more convinced of your hardship. 

Now, they might wonder where you’ll get the money that you offered them. After all, they would want to be sure that you’ll be able to pay them at least the sum. To clear their doubts, you can specify where you’ve got the money, such as from your pension or a relative or friend. If you come across a windfall amount, such as by winning a lottery or getting an inheritance, you can use that to pay as well. Whatever be the case, you must mention the source to make things clear.

In what situations can you opt for it?

You can’t get a full and final settlement at just any time you want it. You should have crossed the default date of the loan. Only after that can you offer a lump sum to your creditor. So, you can’t apply for it if you have missed just one or two monthly payments. In those cases, you would have to look for other arrangements.

Does this arrangement affect your credit score?

When you take a loan, the lenders always ask to have a look into your credit file, and it is very useful information for them. After all, it helps them know about how you have dealt with past credits. They take into account various aspects of your credit history and give you scores based on that. Based on that, they’ll decide whether to lend you any money and the interest they should charge. The lower the score is, the harder it’ll be to get a loan at a good rate. If it’s too low, nobody except maybe a handful of lenders would agree to lend you.

Non-payment of debts will damage your credit rating. So, you might wonder what happens if you settle it by paying a partial amount. In such cases, your rating would still be affected. However, it won’t be as much damage caused as it can be by bankruptcy or insolvency. So, this is something that you must consider before you go for a full and final settlement. You might have to wait for six years before you’ll be able to take another loan at a favourable interest. Until then, the current debt will be written as being partially settled in your credit file.

What happens when you have many people to repay?

You might be wondering whether you can use this in the case of many repayments — in that case, you must know that you can indeed do so. However, things work a little differently in this case, you have to decide the percentage very carefully. That’s because you have to offer the same to all of the people that have lent you credit. What if you already have a DMP?

You might already have signed an arrangement to clear your debts to various creditors. Now, suppose you see that you won’t be able to pay the full amount you owe; therefore you want to pay a lump sum to write it off. If you’re wondering, it is indeed possible to do so in such cases. You can offer a lump sum to your creditor while you are still in a debt management plan. Not only that, but you can also make the same offers to the other creditors in your DMP as well.

What are the drawbacks of this arrangement?

To make sure that you make the right decision, you must take into account all the cons of this arrangement. The biggest one among them is that the creditor may not accept your offer. As a result, you’d be required to read their mind to be able to convince them. 

Apart from that, it also damages your credit rating to some extent. So, go for this arrangement only after careful consideration. Make sure that there are more benefits than risks in your case.

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