What are the possible reasons for IVA’s failure?

Before finalizing an IVA as your ultimate debt solution, it is vital to know the consequences of what might happen if the IVA fails. If that happens, you must plan an alternative option by talking about your concerns with the IVA advisor.

Many people in the UK opt for IVA after getting proper IVA advice. However, you’re mistaken if you think that an IVA would not fail or get rejected. There are possibilities of an IVA failure depending on the related factors. Hence, if you want your IVA to succeed, you ought to keep up with the IVA terms and try not to breach any conditions. Missing on making regular IVA repayments could also lead to the failure of the IVA agreement.

You would usually choose an individual voluntary arrangement (IVA) as it is a legal way to resolve your debt problems. That is why any IVA breach will lead to an IVA failure.

Common reasons why an IVA might fail include the following conditions:

• Not keeping up with the monthly IVA repayments and not informing the insolvency practitioner (IP) about it.
• Not able to make further IVA payments due to changes in the financial situation midway.
• Failing to make IVA contributions consecutively for three months straight.
• Cannot provide necessary evidence of your income and expenses during the annual review held by the insolvency practitioner when the IVA is active.
• Obtaining additional credit for more than £500 without getting approval from the IVA supervisor. It is better to take IVA advice before taking any action when in an IVA.
• Did not inform the IVA Supervisor about any windfall cash.
• Failing to abide by the instructions given by the IVA Supervisor as stated in the IVA proposal.

So, conclusively, an IVA breach will lead to the failure of your IVA. This is why it is advised to get IVA help when a situation arises.

What will happen when you fail IVA?

If you fail your IVA, your IP will send you a termination letter as well as a failure report. The report would detail your creditors and how much money has been paid to them as part of your IVA so far. Your IP will notify your creditors that your IVA has ended, but it is up to you to come up with a new payment plan; failure to do so could result in your creditors filing for bankruptcy.

Your IP will also notify the Insolvency Service that your IVA has failed, and it should be removed from the Insolvency Register three months after it has failed. Your IVA will also be marked as failed on your credit report, but it will remain on your record for six years from the date of approval, so even though your IVA is over, it will still have an impact on your credit score.

It’s important to note that if you’re concerned that your IVA will fail because you’ve missed a payment or your circumstances have changed, you should contact your Supervisor right away. They will be able to provide you with guidance and support regarding your options, but it may be possible to reduce your payment amount or take a temporary payment break while you get back on track.

Is it still necessary for me to pay the IVA fees?

No, your fees are deducted from your monthly payments, so you only pay the monthly amount that was agreed upon – this money will be used to cover the fees and then distributed to your creditors.

You will not be required to pay any IVA fees if your IVA fails at any stage; instead, you will be left with the remainder of the debt owed to your creditors.

What should I do if my IVA isn’t approved?

If your IVA fails, it’s not the end of the world. The first thing you should do is contact your boss. They will arrange for a debt advisor to meet with you to discuss alternative debt solutions that, depending on your circumstances and future goals, may still be able to help you pay off your debts. Here are a few options you might want to think about:

Set up a DMP (Debt Management Plan) – While a DMP does not guarantee that your interest rates or charges will be frozen, it does allow you to continue making monthly payments to your creditors and paying off your debt over time. If you follow your agreement to the letter, you may be able to persuade your creditors to agree to another IVA with you in the future.

Filing a bankruptcy petition – Declaring bankruptcy allows you to wipe your debts clean. In exchange, you will be required to sell your assets to raise funds to repay your creditors – this could include your home and car – and, if you can afford it, make monthly payments into the bankruptcy for up to three years.

Effects when an IVA fail

The main reason why an IVA fails is the debtor’s inability to make regular IVA contributions, as stated in the IVA proposal. Depending on the IVA terms, the debtor’s default will be arranged. If the IVA insolvency practitioner suggests, the most likely consequence of payment default is bankruptcy. If you reach such a situation, get essential IVA help from the Stepchange. Or else, you can negotiate with the creditors to resolve the issue.

If the IVA fails, the insolvency practitioner will first assess the situation to decide on a suitable outcome. The following problems might arise when an IVA fails.

You will receive an IVA failure report and a termination letter when an IVA fails. This is the first thing that the insolvency practitioner will send to you. The IVA failure report will contain the following information:

• Full details of the creditors who are included in the IVA proposal.
• Reasons for the IVA failure.
• The amount that each creditor received from the part IVA payments till the date of IVA failure.
• The debt amount that you still owe to the creditors.

When the IVA fails, the IP will inform the creditors of the same. Likewise, you are now not obligated to make any IVA repayments. Any IVA fees and costs will also stop as the IVA Supervisor will be discharged from their duties. However, the IVA fees and expenses incurred while the IVA was active will still have to be paid. The remaining debts are still your responsibility to make repayments out of IVA terms. If you don’t repay, the creditors can file for your bankruptcy.

When your IVA fails, you still have an obligation to repay the creditors. If not, the creditors are liable to contact you to recover the debt. They can even make you bankrupt and seize your property or assets to raise the debt amount. When in an IVA, you receive protection against the creditors’ harassment for debt recovery. But after the IVA failure, you are no longer under any legal protection.

If you struggle to handle the creditors and manage your outstanding debts, you should seek IVA advice via StepChange live chat.

What should you do if an IVA fails

When an IVA fails, you have a few options to do depending on your situation. Whichever option you go with, get proper IVA help to ensure that you made the right choice.

• Propose modifications to the IVA terms

When your IVA fails and your reasonings are genuine, you can propose to the creditors and the insolvency practitioner to change the IVA terms before receiving the IVA termination letter and IVA failure report. If your offer for modifications in the IVA terms benefits the creditors, they might accept your changes in the IVA agreement.

• Bankruptcy

If the reasons for the IVA failure are not authentic and you neither made any proposition to make changes in the IVA, the parties involved can file for your bankruptcy. IF THE SITUATION PREVAILS, the IVA supervisors hold the power to petition for the debtor’s bankruptcy.

• Propose a new IVA

For whatever reason the present IVA failed, you can apply for a new IVA agreement with new terms and conditions if the situation permits. But make sure to get proper StepChange debt charity IVA advice to know what is teh best thing to do in your current situation and debt management.

• Payment offer to pay off the outstanding debts

As the proceedings for your bankruptcy begin, you can avoid bankruptcy by making a payment offer to repay all the outstanding debts. At this point, it is better to make full repayment to the creditors to avoid further debt harassment. You will also have to bear the costs of the IVA supervisor. Even though the IVA failed, if you successfully make full debt repayment, the IVA supervisor will, in the end, issue an IVA Completion Certificate to you.

Besides those mentioned above, you can also apply for other debt management solutions to pay off your debts. The StepChange debt charity might offer your reliable debt advice if your situation allows it.

How IVA breathing is different from IVA failing?

A breach notice can be issued if you do not follow the terms of your IVA proposal, but an IVA breach does not always mean that your Individual Voluntary Arrangements will fail.

A breach notice will be sent to you to show how you’ve violated the terms of your IVA. These are the validated examples of IVA violations:

• Failure to provide the information required for your annual IVA debt advice
• Selling your assets and not putting the proceeds into your agreement is a recipe for disaster.
• Defaulting on possible IVA payments (up to three months in arrears)
• refusing to follow your Insolvency Practitioner’s orders (within reason)
• Increasing your income but not paying a portion of it to your creditors

Any of these IVA breaches could lead to a failed IVA, but you’ll be given time to make amends first.

The breach notice will provide you with a detailed explanation of what you’ve done wrong, as well as a deadline for rectifying your error. You should be able to get your IVA back on track if you take the necessary steps to resolve the matter within that timeframe.

Will I be able to get a new debt solution if my IVA fails?

Don’t be alarmed if your IVA fails due to a change in your financial circumstances. Instead, look for a different way to help you manage your debt. Some options that may be available to you are listed below.

Plan for Debt Management (DMP)

A Debt Management Plan is an agreement between you and your creditors, negotiated by you or a third party, to reduce your monthly payments to them.

A DMP, unlike an IVA, is not legally binding and does not result in a debt write-off; however, you will be able to repay your creditors over time using monthly payments that you can afford.

 

Order of Debt Relief (DRO)

A Debt Relief Order (DRO) is a legal agreement that allows people who have little to no extra income, don’t own their home, and owe £20,000 or less to repay their debt over time.

A Debt Relief Order, which is set up through a DRO advisor and the Insolvency Service, allows you to pause payments on your debts for a period of 12 months. Your creditors can’t force you to make payments while you’re in a DRO, and they can’t actively pursue you for your debts.

Bankruptcy

If your IVA fails, an Insolvency Practitioner can ask the court to declare you bankrupt. If you have a low income and don’t own a home, this could be a good option for you, allowing you to pay off your debts and start over financially – but you should think about it carefully before signing anything.

Alternatively, your creditors may try to declare you bankrupt if you do not adhere to the terms of your IVA. If you want to avoid bankruptcy, you should try to reach a separate agreement with them on how you will repay your debt.

Where can I get debt help and learn more about IVA failure?

Failure of an IVA can be frightening, and it can make people in financial distress feel as if they have nowhere else to turn. We’re pleased to inform you that this is not the case.

We specialise in IVAs and debt management plans at IVA Plan. We provide a comprehensive, independent service that will assist you in determining the best debt solution for your situation, whether it is an IVA or another debt solution.

Visit IVA Plan and schedule a meeting with a debt advisor today to get free advice and guidance on how to pay off your debts at an affordable rate.