An IVA can fail if you do not maintain your agreed payments. What are the implications of a failed IVA and how to prevent it happening.
- Why might your IVA Fail?
- What happens to money already paid in?
- Your options after a failed IVA
- How to stop the Arrangement failing
Why might your IVA Fail?
There are a number of reasons why an IVA could fail. After a change in circumstances you may find you cannot afford the agreed payments. Your Insolvency Practitioner (IP) may then have no choice but to cancel the Arrangement.
Alternatively you may be unhappy. Perhaps you have decided it is the wrong solution for you or you no longer believe that your IVA Company is supporting you or acting in your best interests.
In this situation you can decide to let the Arrangement fail. The way to do this is to stop your monthly payments and inform your IVA Company of your decision in writing.
Generally speaking an IVA cannot be failed unless you are at least three months in arrears with your payments.
What happens to money already paid into a Failed IVA?
After the Arrangement has failed any money you already paid into it is not returned to you. It is held back by your IVA Company to pay their fees and if sufficient cash is available make a payment towards your debt.
The amount which goes towards your debt depends on how much you paid in. If you were paying less than £150/mth and the agreement fails in the first 12-18 months it is likely that all the money will be taken in fees.
There is nothing unusual or wrong with this situation. When the Arrangement was agreed your Insolvency Practitioner (IP) became entitled to charge fees. The payments you make within the first year normally only cover the initial costs and Nominee Fee.
If you have been paying for a few years some of your debt may have been paid if your IVA fails. However it is likely there will be some left outstanding.
What are your Options after your IVA has Failed?
After your IVA has failed you are still liable for any outstanding debt. If you do nothing your creditors will eventually start collection actions against you. As such you will need to consider the options to prevent this.
One possibility is to start a new IVA. This might be suitable if you feel your original agreement was not set up correctly and you can still make a reasonable monthly payments. However it would mean beginning again from month one.
If you are not a home owner or have little or no equity in your property you could consider going bankrupt. This might also be sensible if you cannot afford to make further payments towards your debt.
If your IVA has failed it is unlikely that your creditors will make you Bankrupt. They are not likely to receive any of their money if they force you down this route.
How to stop your IVA from Failing
After your circumstances change for the worse it is often possible to prevent your IVA from failing. If the situation is only temporary the first option is to consider a payment break.
In other words you stop making your payments while you get yourself through the financial crisis. Once it has passed you start to pay again as normal. The payments you have missed are added to the end of the Arrangement.
If your circumstances have changed permanently a payment break is unlikely to help. However it might be possible to reduce your ongoing payments. This option will normally also involve an extention of the IVA overall.
Speak to your IVA Company as soon as your circumstances change. A break or reduction in your payments must be agreed with them before you can stop or reduce them.