There are various reasons why you might want to, or need to terminate your IVA. The IVA is a legally binding arrangement but can you break it, stop paying the IVA and go bankrupt instead?
Jump to article contents:
- Are you allowed to stop your IVA
- When is bankruptcy a better option
- Will you lose the payments already made
Considering ending your IVA? Give us a call 0800 077 6180 or complete the form below to speak to one of our experts.
Are you allowed to stop your IVA
Simply, yes you can stop the arrangement. There are various genuine reasons why the IVA payments could become affordable due to a change in your circumstances. This might be work or health related or due to a sudden increase in your expenses that was beyond your control.
One way to do this would be to stop paying the IVA and allow it to fail. It is better to tell your IP what is happening by notifying them in writing. They will then fail the IVA formally and notify all your creditors. At this point the IP will no longer be working with you and you will have to deal with your creditors yourself.
Your debt would still be outstanding and often it may be the same amount as when you entered the IVA. This is because the IP takes their fees from your payments for the work they do for you. Your early IVA payments will be mostly fees to the IP.
Your creditors may not contact you immediately. In fact it could be several months before they start to chase the debt again. But they will come after the debt and it is better to be proactive about what you do next.
When is bankruptcy a better option?
If you stop paying the IVA, once it fails you will still be liable to pay a considerable amount if not all of your original debt. If you declare yourself bankrupt, this burden will be taken away immediately.
As a tenant paying rent or a homeowner with little or no equity in your property, there will be little risk to your home. Ongoing monthly repayments will only be required if you can afford to pay more than £20 a month to the court. Even then such payments will only last for a maximum of three years.
If you own a home you need to be careful and we can advise you on this. The Bankruptcy process will look at any equity you have. If there is equity and you go bankrupt you may have to sell the home to release the funds for your creditors.
If you own a car worth more than £1000 you may have to sell it, buy a cheaper one and pay the difference to your Bankruptcy. Of course you may already have a cheaper car or just use public transport.
In bankruptcy if you are renting and have a cheap car, you could pay nothing or only have to pay for 3 years. This is compared to the 5 or 6 years of payments in an IVA.
Will you lose the payments already made?
If you stop paying the IVA you will not be able to get any of the money you have paid back. It is important to understand that not all of this will have gone towards repaying your debt. Your insolvency practitioner has the right to charge fees for implementing and managing the Arrangement.
If you have only been paying for a short period then a high percentage of what you have paid if not all will be taken by the IP to cover their initial costs. You may therefore find that your total outstanding debt is the same as when you started your IVA.
If your IVA fails it is very unlikely you will be forced to go bankrupt. Creditors often get very little if you go bankrupt, so they would prefer an ongoing repayment plan with you. Also they cannot petition for your bankruptcy unless you owe them more than £5000.
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