Lump Sum Individual Voluntary Arrangements (IVA) - Case Study 3 - Lump Sum IVA
Based on receiving a Lump Sum from a Relative / friend - Can an Individual Voluntary Arrangement be over in months?
This "Lump sum Individual Voluntary Arrangement" case study is not based on monthly payments being made for several years - Instead it is based on a "lump sum" being offered as a gift to the Individual Voluntary Arrangement by a relative of the person who owes the money - to enable an offer to be made to creditors in full and final settlement of say 10 pence or 20 pence in the pound. The advantage of this type of voluntary arrangement is that the arrangement can be completed in a month or two rather than dragging on for years and years.
Jane is 37 years of age and lives with her husband in a property in Plymouth which is owned in his sole name. She works part-time as a shop assistant and earns a net amount of £350 per month.
She has incurred debt of £20,000 in her sole name, without her husband's knowledge. Due to her small income, she knows that she is not able her to repay her debts.
She has no assets, but a relative has indicated that they will offer to "gift" the lump sum of £5000 into an Individual Voluntary Arrangement provided that the creditors accet that sum in full and final settlement of all Jane's debts..
Will Jane be able to put forward a Lump Sum Individual Voluntary Arrangement and would her creditors be likely to accept it?
Answer - Yes
In order for Jane's creditors to consider accepting the proposed lump sum Individual Voluntary Arrangement, the proposal document would have to demonstrate that the creditors would receive a greater dividend return than should a Bankruptcy occur.
In this instance, as Jane could not afford to make a monthly contribution into an Individual Voluntary Arrangement or Bankruptcy, then by accepting £5,000 creditors (being the offer made in the lump sum individual voluntary Arrangement proposal) would receive a dividend of 25p in the £ as opposed to 0p in the £ in a Bankruptcy.
Individual Voluntary Arrangements based on a lump sum gift provide a quick and easy route to come to a deal with your creditors - and for the voluntary arrangement to be completed in months rather than years.