Individual Voluntary Arrangements (IVAs) can be an ideal debt solution for dealing with unaffordable debt, and a great alternative to bankruptcy, depending on your circumstances. However, once the IVA is approved, you are required to make the agreed payments for the duration of the IVA, and you may be worried about what happens if you stop making your payments due to a change in circumstances.
It’s important to fully understand what is required of both you and your insolvency practitioner before agreeing to make a monthly payment. This guide will talk you through what happens if you fail to make your IVA payments and how to “cancel” your IVA if you’re really struggling.
What Happens If I Fail to Make a Monthly IVA Payment?
If you’re struggling to make your payments, the first thing you should do is speak to your insolvency practitioner as they may be able to offer reduced payments or payment breaks for a period of time using their discretion under the terms of the proposal. Subject to the terms of your IVA, your insolvency practitioner should be able to reduce your contributions up to 15%, or allow an IVA payment break of up to 9 months. If the insolvency practitioner agrees a payment break, then the IVA will be extended by the length of the IVA payment break.
If you need to reduce contributions by more than 15%, or require a payment break longer than 9 months, then your insolvency practitioner can contact your creditors to request a change to your proposal, which is known as a variation. With the variation, your creditors will consider the reasons for requesting a reduction to your payments, or the payment break, and if they are happy with the information they have been provided with, they will approve the variation. The creditors may request an extension to your IVA, to compensate for the reduction in payments. If the variation is rejected, then you will still be required to make the originally agreed payments.
If you are unable to make the agreed payments into your arrangement, creditors may consider accepting a lump sum to complete the IVA early. So if you have a third party, such as a family member or a friend, that is able to offer a lump sum on your behalf, speak to your insolvency practitioner, who will be able to tell you whether the offer is suitable, and if it is, present it to creditors through a variation.
If you find yourself in a situation where you are unable to make any payment to your IVA, or creditors have rejected the alternative proposal, and you are in three or more payments in arrears, then the insolvency practitioner will need to take steps to fail the IVA.
The insolvency practitioner will contact the creditors to advise that the terms of the IVA have been breached, and ask them how they want to proceed. Creditors are asked to confirm whether they want to terminate the arrangement, or request a bankruptcy petition be submitted by the insolvency practitioner, due to the IVA failure. In the majority of cases, creditors will not request a bankruptcy petition, and the IVA will be terminated.
Once the IVA is terminated, you will be in the same position you were in before the IVA was approved, with the relevant options available to you, and your creditors will be free to add interest and charges, for the period you were in the IVA, although they will need to account for any dividends that have been paid to them.
Depending on the provider, an insolvency practitioner may request payment for their outstanding fees, which will increase your outstanding debt. At NDH Financial, once the IVA is terminated, we will not request any further payment from you.
At this stage, you may want to consider other formal insolvency options, as you may be in a position where you are unable to offer creditors a sustainable payment. Depending on your personal disposable income and the assets that you own, the bankruptcy or Debt Relief Order (“DRO”) process may be appropriate for you. Remember that a DRO and bankruptcy affects everyone differently though, so research as much as possible before you decide these are your preferred routes. Your credit rating will be adversely affected if you go down this route, but a failed IVA will have already impacted your credit rating.
There are also other options when an IVA fails, such as contacting a debt management plan provider or debt charity for help. You can also contact your creditors directly to set up individual payment plans with them any future credit checks undertaken will show your failed IVA and may impact your ability to apply for loans or a credit card, for example.
NDH Financial are committed to doing their best to support you in becoming debt-free. Our simple three-step form allows you to contact us straight away for a free IVA consultation and information on assessment periods. Next, you simply supply us with the details of your financial situation in an assessment form, have a call with one of the drafting officers to prepare the necessary paperwork. Once approved, you should then feel the benefit of a more sustainable payment to your creditors, based on what you can afford, and not what they are demanding. We also have an IVA Learning Hub, which offers all the information you need to know about IVAs.
Can I Cancel My IVA?
You cannot cancel your IVA, however, you can ask for it to be terminated, so that you are released from it. It is important to discuss your reason for requesting the termination of the IVA with the insolvency practitioner. The insolvency practitioner may be able to address any problems or concerns that you have, and potential solutions for dealing with these. The insolvency practitioner will also be best placed to determine whether there is a more appropriate solution, based on your current circumstances.
If you have made the decision to terminate your IVA, you need to contact your insolvency practitioner and ask for the termination of your IVA in writing. If both your creditors and your insolvency practitioner are in agreement, the IVA will be terminated. It’s important to remember that creditors may be given the opportunity to request a petition for your bankruptcy, as you will be defaulting on the terms of the IVA.
There are two main situations that make it likely that your creditors and insolvency practitioner will agree on the termination of the IVA - you have advised that you do not intend to comply with the terms as you are considering an alternative solution, or if a change in your circumstances mean you are no longer able to afford a sustainable payments.
Once the creditors have agreed to the termination of the IVA, your insolvency practitioner, such as NDH Financial, will then send you a notice of the termination and you’ll be required to make your own arrangements to sort out the outstanding debt, for example through bankruptcy or a DRO, or by making an informal payment plan either directly or through a debt charity or debt management plan provider.
If you have requested the termination of your arrangement, then the same negative impact will apply. Your creditors will add any interest or charges from the period of the IVA to the outstanding debt, and your credit rating will be updated with the failed IVA. Depending on the provider, the insolvency practitioner may request payment for their outstanding fees, which will increase your outstanding debt. At NDH Financial, once the IVA is terminated, we will not request any further payment from you.
Speak to an Expert Today
So, if you’re looking for debt relief, what are you waiting for? Contact NDH Financial today for your free IVA consultation, based on your circumstances. Once approved, all interest and charges will be frozen, there will be no upfront costs, and any unaffordable debt outstanding at the end of the IVA will be written off. What’s more, your month's payment will be lower than your contractual payments, to assist you in this trying time. Apply now!