If your IVA fails there could be a number of implications. You original debts will often remain outstanding. In certain circumstances you may even be forced to go Bankrupt.
- Reasons why your might IVA Fail
- What happens to your debts if your IVA fails?
- Will you have to go Bankrupt?
- What to do after your IVA fails
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The Reasons why your IVA might Fail
There are two main reasons why your IVA could fail. Firstly your circumstances have changed meaning you are no longer able to afford the agreed payments. Your IP may then be forced to fail the Arrangement.
Secondly you may have decided that entering into the Arrangement was a mistake and it is not right for you. In this situation you can instruct your IVA Company to fail it.
Allowing your IVA to fail is a relatively easy process. You simply cancel your payment and tell your IVA Company to fail it. Generally speaking you are then free to start an alternative debt solution.
If someone who is in an IVA dies before the agreement is finished it fails at that point. If the deceased person has no funds in their estate the outstanding debts are then written off by the creditors.
What happens to your Debts if your IVA Fails?
After your IVA fails you are still liable to pay any debts included in the Arrangement that remain outstanding.
If you were are making relatively low payments or were in the agreement for less than 18 months it is likely that most if not all of your debts will still exist.
Any money you paid into the Arrangement will have been used to pay the Insolvency Practitioner’s Fees and disbursements.
In the majority cases after an IVA fails the debts included in the arrangement remain outstanding. As such a plan is required for dealing with these moving forward.
Will you have to go Bankrupt if your IVA fails?
Contrary to what you might have heard you will not always be forced to go Bankrupt if your IVA fails. In fact it is very rare. The reason for this is that your creditors are unlikely to want to take this action.
If you are made Bankrupt they will often not get the money you owe them. As such they generally prefer to restart more standard collection activities. These may include using debt collectors or applying for a CCJ.
Even if you are a home owner with equity in your property it does not follow that your creditors will want you to go bankrupt. Even in these circumstances after the fees charged by the Bankruptcy Trustee they are likely to receive little or no return.
If one of your main creditors is HMRC the risk of you being forced to go bankrupt after a failed IVA increases significantly. HMRC will nearly always press for this especially if you are a home owner.
What to do after your IVA fails
Given that most if not all of your debts will still be outstanding if your IVA fails you will need to decide what to do next. Simply ignoring them is not an option. Your creditors will start chasing you for payment eventually.
If you are not a home owner or you have no equity in your property you could make yourself Bankrupt. Once Bankrupt you will not make any further payments towards your debts if you cannot afford to.
Where your debts are relatively small and you can afford to make ongoing payments a Debt Management Plan might be a sensible option.
It is possible to allow your original IVA to fail and then start a new one. This might be attractive if your property would be at risk in bankruptcy. However you must be sure you can sustain the new payments.
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