If you have started an individual voluntary arrangement (IVA) but are unable to maintain the agreed payments, bankruptcy could be an option to resolve your debt problem once and for all.
Thousands of people use IVAs every month to resolve their debt problems. The majority are able to maintain their agreed payments without any issue.
However if your financial circumstances change paying the agreed monthly instalments can become problem. If they become impossible switching to bankruptcy might then be a sensible option.
What if I am unable to maintain my IVA payments?
If you find yourself in a position where you cannot afford to make your agreed IVA payments the first thing you should do is speak to your insolvency practitioner (IP) responsible for managing the agreement.
Your income may have fallen but if you can still continue to make smaller payments you may be allowed to do so under what is known as a Variation. This would allow your monthly payments to reduce. However, to compensate for this your creditors could ask you to extend the length of time your Arrangement lasts.
If you are unable or unwilling to make any further payments at all you could stop paying altogether. If you do this, then your IP will normally have to fail the arrangement. At this point your creditors are once again free to take action against you to collect their outstanding debt.
Should I go Bankrupt if I can no longer pay my IVA?
One way of resolving your debt problem if you can no longer pay your IVA is to declare bankruptcy. You simply have to wait for your insolvency practitioner to formally fail your arrangement and then you can submit a bankruptcy application to the court.
You should explain on your application form that you have made your best attempt at repaying your creditors by using an IVA but unfortunately have been unable to sustain the required payments.
Once bankrupt, all of your outstanding debts will be taken away from you and you will only be required to make payments towards your debt if you can afford to do so. Even then such payments will last for a maximum of three years.
If you petition for your own bankruptcy, you will need to pay a fee of £600 to the court. One way of paying this fee is to save the money you would otherwise have paid into your IVA.
What if I am a home owner?
If you are a home owner whether or not Bankruptcy is a sensible option for you will depend on whether there is equity in your property. If so then allowing your IVA to fail can be more of an issue. The reason for this is that your creditors might ask the Insolvency Practitioner to force you to go Bankrupt.
If this were to happen your home could be at risk of being sold to release your share of the equity in it unless a family member or friend is able to pay a sum equivalent to the equity which would otherwise be released.
BMD Tip: If you have equity in your property and your IVA fails your creditors may not request that you are forced to go Bankrupt. In fact more often than not they won’t. However this is something that needs to be considered carefully.
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