It is possible to stop your IVA and then go Bankrupt. You may want to do this if your circumstances have changed or you feel the Arrangement is the wrong solution for you.
Jump to article content:
- Why stop your IVA and go Bankrupt?
- How to stop an existing IVA
- What happens to the money already paid in?
- Is your house at risk?
Why would you Stop your IVA and go Bankrupt?
There are a number of reasons you might decide to stop your IVA and then go bankrupt. Perhaps you are struggling with the payments and cannot agree a reduction with your IVA Company.
Alternatively you may have started the Arrangement without considering all your options. You were simply desperate to get a solution in place and feel you were talked into it without the alternatives being properly explained.
What ever the reason once you make the decision you can stop your Agreement at any time. Once it is formally failed you are free to go bankrupt if you wish.
If you stop your IVA it is unlikely you will be forced to go bankrupt unless one of your creditors is HMRC.
How to Stop an existing IVA
It is possible to stop your IVA at any time by letting it fail. You do this by simply cancelling your monthly payment. You also need to tell your Insolvency Practitioner (IP) about your decision.
Your IP will normally require you to confirm in writing that you want them to fail the Arrangement. They will then begin the process. Once this is done you will receive a letter from them confirming the failure and that they are no longer acting as your supervisor.
It can take 3-6 months for your IP to fail your IVA. Very often they will not do so until your payments are 3 months in arrears. However they may be prepared to act more quickly after you have given your written consent.
Once you have instructed your IVA company to fail the Arrangement you can go bankrupt at any time. You do not have to wait for the termination letter from your IP.
What happens to the Money you have paid into your IVA?
After you stop your IVA the money you have already paid into the Arrangement will be lost. You will not be able to recover any of it.
The cash is first used to pay any of your IVA company’s fees that are due. Any excess is then distributed to your creditors to reduce the balances you owe them.
As a result if you have not made many payments or the amount you were paying was relatively low your overall debt may be the same as when you started.
Once you are bankrupt you may still have to make a payments towards your debts if you have disposable income. This would be for 3 years.
Is your House at risk if you Stop your IVA and go Bankrupt?
The decision to stop your IVA and then go Bankrupt is more complicated if you are a home owner. You will first have to consider how much equity is in your property.
If there is little or no equity your home is unlikely to be at risk. In these circumstances you would be able to buy back your interest for £1000.
However if you have substantial equity it is likely your share would have to be released. If the money cannot be raised in any other way the Official Receiver in charge of your bankruptcy could force the sale of the property to achieve this.
You must get your property valued before deciding to stop your IVA and go bankrupt. If there is more equity than you thought bankruptcy may not be a sensible option.