> What is Lump Sum Settlement?

Lump sum settlement is a special type of IVA where you make a single payment rather than 60 instalments. It is often referred to as a 'single-payment IVA' or a 'full and final settlement'.

> How does it work?

Typically, the lump sum comes either from friends and family, or remortgaging your house. You need to go through an Insolvency Practitioner who will draw up a formal proposal to your creditors and negotiate the amount of debt to be written off. With this type of solution it is possible to write off up to 80% of your debt, or sometimes more. Please note that this option is usually better than 'informal settlement', which means negotiating with your creditors yourself. The reason for this is that the IVA makes it legally binding, and ensures that your creditors cannot change their minds or go back on the agreement later. Debt Made Simple can help arrange a single-payment IVA for you. Contact us for further advice.

> Is Lump Sum Settlement for me?

A single-payment IVA will damage your credit rating over a six-year period. However, it will not damage it as much as a regular IVA. You will also need to make it clear to the creditors that you are doing everything you can to pay your debts. If you are remortgaging, for example, you can't just give them half and keep the rest. Please note that proposing a single-payment IVA can be a complicated affair. To see if you qualify, you should contact a Debt Expert.

> What does 'informal settlement' mean?

'Informal settlement' means that you agree with your creditors to pay them a lump sum if they write off the rest of your debt. If you have access to a sum of money, for example by remortgaging or borrowing from friends or family, you might like to consider this option. There are two types of settlement: informal, and a single-payment IVA (or Lump Sum Settlement).

> About informal settlement

You can arrange an informal settlement yourself by simply contacting your creditors and asking them for a 'settlement figure'. A settlement figure means that some of the interest is knocked off if you pay the balance straight away. However, although creditors may write off some interest, they would not usually write off any of your actual debt. Generally speaking, if you are interested in getting the creditors to write off a larger amount of debt, you should consider the formal settlement option. In some cases, creditors may offer to reduce a significant amount of debt if you negotiate with them successfully. However, bear in mind that without entering a legally binding arrangement such as a single-payment IVA, you have no legal protection against further creditor action. This has led to a number of horror stories. So as a rule of thumb, it is always best to settle formally wherever possible, through the courts, using a single-payment IVA which offers you guaranteed legal protection.