What Happens If An IVA Fails?

When Individual Voluntary Arrangements fail you will be issued a letter of termination and a failure report. Once you have received these, legally, you will no longer be covered by your IVA.

Your remaining IVA funds will be handed over to the creditor and you will solely be held liable for any outstanding money owed.

Letter of termination and a failure report

A letter of termination will be received with a failure report. The letter will indicate that your IVA has failed, the reason for the failure, and that you are no longer legally protected by the IVA.

The report will indicate the amount paid and the amount of unsecured debt still owed to the creditors. It will include a detailed breakdown of all the successful payments made to the IVA. Your letter of termination will also cover the creditor’s information, informing you where you can send the remaining payments.

IVA fees

Once your IVA has failed, you no longer need to pay your Insolvency Practitioner’s fee to your IVA provider. You are now only responsible for the remainder of the amount owed to the creditors. It is now solely up to you to find an alternative method to cover these payments.

Bankruptcy could happen

In the case of a failed IVA, Insolvency practitioners, with permission from the Insolvency Practitioners Association (IPA) that managed your agreement, will be allowed to go forward with bankruptcy proceedings.

As you are no longer legally protected by the IVA, the creditors who gained management over your debt are now in their legal right to also pressure you into bankruptcy.

How Can I Prevent My IVA Failing?

To prevent a failed IVA, you need to make sure that you fully understand the IVA terms and conditions of the agreement. Make sure to communicate with your Insolvency Practitioner about any changes to your financial position at all times.

With your IP’s assistance, you will be able to avoid a breach of the IVA agreement and, ultimately, a failure.

It is best to seek professional financial assistance outside of the IVA during this time. If you are unable to find outside assistance yourself, your IP may, in this instance, put you in contact with a debt advisor.

If you seek advice from a debt advisor, make sure that they are authorised by the Financial Conduct Authority (FCA). For advice on IVA failure and how to prevent it, visit the IVA Helpline.

Prevention can be secured by doing the following:

• Make sure that you are eligible for an Individual Voluntary Arrangement (IVA)
• This includes finding out what amount you have to pay off and whether your income allows you to cover the monthly payments
• Communicate to your IP if your financial circumstances changeThis is imperative, as a change in your financial circumstances may lead to you making reduced payments. Of which your IP needs to communicate to your creditor. Your creditor then chooses to accept lower payments or not.

Will I Be Eligible For An Alternative Debt Solution After A Failed IVA?

If your IVA proposal fails or you are unable to abide by your IVA agreement leading to failure, you will be eligible to apply for alternative debt solutions.

These alternatives are Debt Management Plan (DMP) or Debt Relief Order (DRO).

Debt Management Plan (DMP)

This program allows you to repay your debt without getting a loan. It is normally administrated by a nonprofit credit counselling agency.

It is not legally binding, and there are no prerequisites when applying for a DMP. You will only need to complete a reviewed spending plan with an NFCC-certified credit counsellor. They will then let you know if a DMP is a correct option.

Debt Relief Order (DRO)

This alternative debt solution is for individuals with a £20,000 or less debt who have low or no income and do not own their homes.

This program is put together by a debt relief order advisor and the insolvency service. With a DRO, your required monthly debt repayments will be held for 12 months.

During the 12 months, the creditors do not have the authority to oblige you to continue your payments. Nor are they allowed to contact you in any way.

At the end of your DRO, your debt will be written off, which means you are no longer required to pay. However, if your debts were acquired through fraud, you will have to pay them back after the DRO has ended.

If your financial circumstances change and you can pay off your debts. Your DRO may be stopped so that you can continue paying the money owed to your creditors.

Bankruptcy

Bankruptcy may be the final option after a failing IVA. It is better for an individual without assets as becoming bankrupt may lead to the loss of your property.

Your creditors may make you bankrupt as well. In this case, communicating with them about a plan on how you can repay them is something you should do before they do so.

Final Thoughts

It is important to seek professional financial help if you think that you may be at risk of your IVA failing. It is certainly an unwanted and very stressful process to go through. Staying in constant communication with your IP will ensure that you can avoid your IVA failing and, in the meantime, find solutions before it is too late.

A failed IVA is not ideal, but it can be avoided. In some cases, it may not, and failures do occur. There are alternative debt solutions for you to investigate and apply for that will be beneficial to your financial position.

Knowing how to prevent your IVA from failing is the best way to avoid it. Getting expert advice from professional debt advisors is a simple and effective way to stay knowledgeable on what is beneficial for you before, during, and after your IVA.