You should be aware that certain circumstances can result in the failure of an Individual Voluntary Arrangement (IVA). Having all the information means you’ll know what to watch out for when an IVA goes awry, even if failures are extremely rare.
As we explore IVA failure, we’ll discuss the reasons why an IVA might fail, what happens if your IVA fails, and what you should do next.
Can an IVA Fail for Any Number of Reasons?
You enter into a legal binding contract with your creditors when you establish an IVA. Failure to comply with your agreement is the most likely cause of IVA failure. If you don’t follow the terms of your IVA, your IVA fails.
An IVA is most likely to fail because you fail to pay on time and fail to notify your Insolvency Practitioner (your IVA supervisor); You will be refused a reduction in payments by your creditors if your financial circumstances change; You will be denied additional credit without the permission of the Insolvency Practitioner; You will lie on your IVA application, or You will die.
You, your creditors, and your IVA provider all breached your contract in each of the scenarios above, and your IVA would fail.
If My IVA Fails, What Happens?
When your IVA fails, you will get a termination letter and a failure report from your Insolvency Practitioner (IP). All details regarding your failed IVA are included in the failure report, including:
- Details of the creditor
- How much you have paid each of your creditors each month
- Failure of the IVA
Insolvency practitioners and IVA providers will not be able to collect payments from you once your IVA fails.
Despite this, you are still obligated to pay the original amount. You must make further payments towards your total debts if you want to avoid bankruptcy to avoid owing your creditors the remainder of the IVA debts included in the agreement.
Since it is a legally-binding agreement, you are protected against creditors harassing you for payments when you have an IVA. The protection provided by IVAs ends when the IVA fails. If you breached the agreement, creditors are able to contact you again and even force you into bankruptcy.
As a result of your IP’s ability to make you bankrupt, it has also been given the ability by the Insolvency Practitioners Association (IPA). When you have a problem with debt, bankruptcy may be your last resort, but it can provide you with a relatively quick start.
Should I Be Concerned About the Failure of My IVA?
An IVA is a legal contract. The rules apply not only to creditors but to you as well. Your IVA could fail if you don’t meet your payments or other obligations.
Insolvency Practitioners or IVA providers determine whether you are eligible for an IVA based on your financial circumstances, including the level of unsecured debt and your ability to pay the related costs.
A reduced payment proposal can be put forth based on your financial situation.
It’s better to stick to your IVA than breach it and have it fail immediately, even if your creditors are not obligated to accept that proposal.
Can an IVA Be Breached as Well as Failed?
You can be issued a breach notice for not following your Individual Voluntary Arrangement proposal, but the breach won’t necessarily lead to the failure of your individual voluntary arrangement.
In order to find out how you have breached your IVA, you will be issued a breach notice. In the event of a breach of an IVA, the following things are considered:
- Your annual IVA review does not include the necessary information
- Failure to funnel the proceeds of your sale into your agreement
- In arrears with your IVA (up to three months)
- Disobeying your Insolvency Practitioner’s orders (within reason)
- Not paying your creditors a portion of your additional income
The failure of any IVA may result from any of these breaches, but you can make amends for the breach first.
An explanation of what you’ve done wrong will be included in the breach notice, as well as a timeframe for correcting it. The IVA should be able to get back on track as long as you take steps to resolve the issue within that time frame.
Is There Another Debt Solution I Can Choose After My IVA Fails?
Don’t panic if your IVA fails due to a change in your financial circumstances. If you want to handle your debt, you should look for an alternative solution. Here are some options you may want to consider.
Debt Management Plan (DMP)
A Debt Management Plan lowers your monthly payments to your creditors through negotiations between you and a third party.
Unlike an IVA, a DMP does not involve debt write-offs, but it does allow you to repay your creditors at a rate that will be affordable in the long run.
Debt Relief Order (DRO)
The Debt Relief Order (DRO) is designed to help people who are struggling to pay off their debt over time and do not own a home.
DRO advisors set up Debt Relief Orders through the Insolvency Service to pause your debt payments for a year. You can’t be forced to pay any money to your creditors once you’re in a DRO.
An Insolvency Practitioner can file a bankruptcy petition on your behalf if your IVA fails. Getting rid of your debts may be an excellent solution for people with low incomes and no home ownership. However, before committing to anything, you should think it through carefully.
You may also be forced to file for bankruptcy if you breach the terms of your IVA. In order to prevent bankruptcy, you should try to negotiate separately with them about how you will repay your debts.
Do You Have Information on IVA Failures and Debt Advice?
In the event of an IVA failure, people struggling to make ends meet may feel like they have no other option. That’s not the case, we’re happy to tell you.
At Free Debt Help, we specialize in IVAs and debt management plans. No matter what type of debt solution works best for you, we provide a comprehensive, independent service that can help you find it.
Make an appointment with a debt advisor today at IVA Plan for free advice on how to pay off your debts at an affordable rate.