Forced to go Bankrupt if IVA Fails

Forced to go Bankrupt if IVA Fails

If your IVA fails it is unlikely that you will be forced to go Bankrupt. However you can choose to implement this option yourself if you wish.

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Will you be Forced to go Bankrupt if your IVA fails?

You may find yourself in a situation where you simply cannot afford your IVA payments or you have decided you no longer want to be in the the Arrangement. In these circumstaces you can let it fail. However you may be worried that you will then be forced to go bankrupt.

In fact it would be very unlikely for this to happen. If you go bankrupt your creditors will rarely get back what they are owed (even if you are a home owner). As such they will normally want to avoid this situation and instead try to collect their outstanding debt by agreeing a monthly payment plan with you.

In addition since October 2015 a creditor can only petition for your bankruptcy if you owe them at least £5000. As such individual creditors in your IVA who are owed less simply would not be able to take this action.

The only time you are likely be forced to go bankrupt after your IVA fails is if you accepted this course of action when the Arrangement was originally agreed. HMRC will commonly demand this clause before they agree to an IVA.

Can you Choose to go Bankrupt if your IVA fails?

After your IVA fails it is likely that much if not all of the debt you owed when you started the Arrangement will remain outstanding. This will almost certainly be the case if you were only in it for a year or two and your payments were relatively low.

You cannot just ignore the debt. It may take a few months but your creditors will start chasing you for it eventually. If you are going to struggle to pay there is nothing to stop you dealing with it once and for all by going bankrupt yourself.

Bankruptcy means that your debts will taken away from you. If you have no surplus income you will not have to make any further payments towards them and after 12 months they will be written off.

If you are a home owner you should not go bankrupt before getting advice. There may be serious implications for your property particularly if there is equity in it.

If you are not forced to go Bankrupt when will creditors start chasing you?

Your IVA company will write you a letter confirming that your IVA has failed. On the same day they will also write to all of your creditors informing them that you are no longer in the Arrangement. They are then free to try and collect their debt directly from you.

Having said that most will not start their collections activities immediately. It is actually quite common not to hear anything from any of them for up to 6-12 months.

However do not be fooled into thinking that they have forgotten about you. This is extremely unlikely. Your debts still exist and you can be sure that they will start chasing you eventually.

After your IVA has failed your creditors will chase you for the outstanding debt eventually. In anticipation of this do not bury your head in the sand. Take advice to see if bankruptcy might be the best next step for you.

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