What Happens If an IVA Fails?

An individual’s personal circumstances are a huge factor when it comes to paying off any unsecured debt and avoiding further credit damage.

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With so many other things to think about, it can be easy to overlook the details or figure out how you can afford payments. Thankfully, there are Individual Voluntary Arrangement (IVA) debt solutions that you can get into.

But, what happens when a legally binding agreement like this fails? A failed IVA can be highly stressful, but you won’t be alone if this happens. It’s critical to understand what will happen if your IVA doesn’t go as planned before you sign it. Although this is uncommon, it’s still a good idea to have a contingency plan in place and you can discuss all of this in detail with insolvency practitioners (IPs).

So, if an IVA fails, what should you do and what exactly does it mean? Don’t worry, we’re here to help. In this guide, we’ll go into detail about how an IVA fails, what you and your insolvency practitioner can do, and your possible other debt solutions. Read on to find out more!

What happens when an IVA fails?

In an ideal scenario, your insolvency practitioners would advise you to take on individual voluntary arrangements with a payment plan you can actually, realistically afford and not make you bankrupt. But, sometimes, IVAs fail and you’re left to come up with other alternative debt solutions which may not be as ideal as the solution your money advice service originally pitched to you. So, what happens then?

Will you be forced to start over and deal with a slew of unpleasant creditors? Is it possible that you’ll go bankrupt? If or when this happens, your IVA firm will send you the following if your IVA fails:

  • A termination letter
  • A failure report that shows who your creditors are, how much you owe them, and how much you’ve paid them in your IVA.

If an IVA fails, it’ll be reported to your creditors as well as the Insolvency Service. Your IVA will also be listed as a failed IVA on the Insolvency Register by the Insolvency Practitioners Association. However, it will be removed from the register after three months.

Your credit score will not improve because the IVA will remain on your credit report for six years after it began. If you file a PPI claim, the refunds will almost certainly be transferred to your previous IVA firm, not to you.

Can you go bankrupt?

In short, yes, you can go bankrupt. An IVA is a legally legally binding agreement so if you break the terms of this, the IVA firm or one of your creditors has the right to declare or make you bankrupt.

Unless you have a lot of equity in your home, most commercial creditors will not declare you bankrupt. straight away. Since the fees of bankruptcy are quite substantial and must be paid first before creditors get anything, this would have to be a lot more than your entire debts. Even if they don’t earn any money from it, HMRC will sometimes make someone bankrupt.

Will creditors hassle you?

It’s not uncommon but it isn’t always the case. So, you won’t really have to worry about creditors hassling you unless your individual financial circumstances change drastically. This isn’t always the case right away, but it can happen after a few months.

These instances are all unique, and what happens is determined by a variety of factors, including the reason for your IVA’s failure, whether you have equity in your home, the amount of debt you owe, the type of debt you owe, and who the creditor is.

How can an IVA fail?

The following are the most likely causes for an IVA to fail:

  • If you don’t make your IVA payments on time and don’t tell your IP
  • If your financial circumstances change and your creditors refuse to accept lower payments
  • This is applicable if you have additional income or another unsecured debt you have to pay for
  • If you take on more credit during your IVA without your IP’s authorisation
  • If it turns out that the information you provided on your initial application was erroneous

In other words, if you don’t follow the provisions of an IVA, you might get into trouble and the IVA will fail. There’s sure to be an alternative solution available, however, your IPs main goal is to avoid your IVA from failing to begin with.

Missed payments

Your IVA will fail if you are unable to pay your creditors and they refuse to accept reduced payments. This implies that you will still be liable for all of your debts, and your creditors will be able to pursue them.

Failing to provide details for IVA review or failing to give correct details

The key to getting your IVA proposal approved is transparency between you, your Insolvency Practitioner, and your creditors. As a result, it’s no surprise that if you want your creditors to agree to this debt management plan, you’ll need to supply accurate and true information.

Circumstance change

Due to your financial circumstances changing and your earnings decreasing, you can ask the creditors to agree to a change in the IVA terms and lower monthly payments than originally agreed upon. However, it’s entirely up to them to decide whether or not the changes are acceptable.

If you get a breach notification, it will tell you everything you need to know about the situation and how to get back on track. If you don’t get the breach resolved, your supervisor may have to convene a conference of creditors to determine how they want to proceed. In the end, it’s possible that the IVA will be terminated.

What are the consequences of failing an IVA?

You and your creditors will no longer be obligated by the conditions of your IVA fees if the IVA fails, and you will no longer be protected by the IVA’s legal protection with the IVA failing. The debts that were included in the IVA will be directly liable for repayment. The amount owing may be increased if your creditors add any interest or charges that would have been charged to the debt before the IVA was approved.

Your creditors may decide to take legal action against you in order to get the money they owe them. If monies are kept in the IVA, your creditors may request that your appointed Insolvency Practitioner file a bankruptcy case on your behalf.

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How can I prevent an IVA breach?

There are things your IP may do to keep things on track if your circumstances have changed. If you have a short-term emergency, for example, you may be able to take advantage of a pre-approved payment break to help you pay for it.

Your IP may need to contact your creditors to request a modification of your IVA if you’ve had significant long-term changes. When it comes to dealing with any changes in your situation, your IP will be fair and will be able to make any necessary decisions. The sooner you inform them of any problems, the more likely they are to assist you.

What if I can’t prevent an IVA breach?

Your Supervisor will issue you a certificate of termination to confirm that your IVA has come to an end if all other alternatives have been exhausted and your IVA fails.

You will no longer be shielded from your creditors bringing action against you if your IVA is cancelled. You’ll get credit for the payments you’ve made to your IVA, but you’ll still be responsible for the balance. They have the ability to start or stop charging you interest on your obligations. There’s also the possibility that your creditors will file a bankruptcy petition against you.

Because of nominee and supervisor costs, the amount you pay towards your debts may be less than the amount you pay into your IVA.

If your IVA is in danger of collapsing, contact a debt advisor as soon as possible to discuss your options. They’ll work with you to make your IVA a success, but if your circumstances have altered to the point where it’s unlikely that your IVA will be finished successfully, termination may be the only alternative.

What are my options when an IVA fails?

When an IVA has failed, you have five options:

  • A Debt Relief Order or bankruptcy is another option for insolvency.
  • You have no choice but to ignore any debts that come your way and deal with them.
  • For all of the debts in your IVA, you can set up payment arrangements or a DMP.
  • If you have a lump sum of money, you can try to settle some of your debts with full and final settlement offers.
  • You could try to create a new IVA.

These are all viable options, however, you should still discuss these and your current situation with your IP before you decide what to do moving forward.

Can I get another IVA if one fails?

It may be worth contacting another individual voluntary arrangement business or insolvency service to see if they think a second IVA could work if you have assets to preserve and can afford fair monthly payments on your debts. Expect a lot of inquiries about why your first IVA fail though.

What percentage of IVA fails?

Of course, personal circumstances largely affect the failure rate of IVAs, but numerically, the current one-year IVA failing rate has grown from of 4.1% to 8.4% in the last couple of years. The two-year failed IVA rate was around 11% for registrations, before rising to 19.5% for 2017 registrations in subsequent years.

How long does a failed IVA stay on credit file?

Your specific voluntary agreement will be erased from your credit report after six years. You won’t have much credit information at this time because the IVA limits what you can borrow, so your credit score may still be low.

Summary

IVAs are typically the best debt solution for those who can confidently stick to debt management plans. That works especially when you seek advice from your IP and you lay down all the costs involved, fully understand your financial circumstances and come up with the perfect, most doable debt management plan for you. This is one sure way to avoid failure in your IVA and avoid looking for other debt solutions which could, in turn, lead to further payments instead of reduced payments and reduced stress.

It’s natural to feel distraught or stressed if your IVA fails and talking to debt advisors or creditors is the last thing you want to do. However, it’s advisable to decide what you’re going to do rather than trying to ignore the circumstance. You can take back control of your finances by getting some good debt help as soon as feasible.

To keep your IVA from failing, you must adhere to the requirements and pay the agreed-upon sums on time. If you need help or more information about IVAs and why they fail, we’re here to help.

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IVA Debt Help Information

If you want to know more about the debt help plan of an IVA we have all articles related to individual voluntary arrangements here:

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An IVA is not the only debt solution you have and this is where speaking to a qualified debt advisor is very important.

After speaking to a debt consultant you might realise the best solutions are one of the following:

Make sure you take time to understand all the debt solutions available before making a decision because DMPs (aka debt management plans) are also a popular choice in the United Kingdom.

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