When you are drowning under the huge pressure of debt and someone offers you a lifeline such as an Individual Voluntary Arrangement (IVA) it can be very tempting to jump straight in without being clear about all the facts.

There are indeed many positive things about this type of debt solution however it is also important to be clear about the risks involved with using one.

In this article we will consider in detail the consequences if things go wrong if you start an IVA and you are no longer able to keep up your payments.

What happens if I can’t keep up my IVA payments?

The basis of most IVAs is a single monthly payment towards your debts made each month for the length of the agreement. If you are unable to keep up with this payment the worst case is that the Arrangement will fail.

If this happens it is very possible that you will still be left with your original debt especially if you have not made very many payments. This is because during the start of the agreement a lot of the money from your monthly payments goes towards fees rather than repaying your original debt.

If you are a home owner with equity in your property your creditors may instruct your Insolvency Practitioner (IP) to make you Bankrupt. If this happens your property could then be at risk of forced sale.

Having said all that IVA failure is the worst case scenario. There are various options available to prevent your IVA failing if you find yourself unable to make payments.

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Can I take break from my IVA payments?

Sometimes, with the best will in the world, unforeseen circumstances will mean that you can’t keep up with your IVA payments. If this happens your must contact the company managing your Agreement and explain the situation immediately.

Remember they are there to help you. It is not in their or your Creditor’s interest for your Arrangement to fail as they are likely to receive far less if it does.

The first option available to consider is a ‘Payment Holiday’. This is simply a break from payments which can last for almost any length of time but normally it will be between 3-6 months.

This break period is a useful tool if you have a short term drop in income. If you have perhaps lost your job it will allow you time to find a new job so that you can start your payments once again. The payments you miss will then normally be added to the end of the Arrangement.

Can I reduce my IVA payment amount?

A second option if you find that your financial circumstances have changed and you are now struggling to meet your payments is the possibility of lowering your monthly payment amount. This is known as an ‘IVA Variation’.

It is possible that lower payments can be introduced for the remainder of the Arrangement. However you should be aware that your creditors would probably not agree to this unless the number of payments you make is increased so that overall you repay the same amount.

The type of changes to your circumstances which might lead to your creditors agreeing to a reduction in your payments might be a reduction of working hours, a change of job meaning you are earning less or an increase in your living expenses due to the birth of a child or an increase in your mortgage payments.

BMD Tip: It will be difficult to reduce your payments simply because of general increases in the cost of living. It is also difficult to do this if what you are paying are already at the minimum level to make the Arrangement viable.

What are my options if my IVA actually fails?

If all attempts to reduce your IVA payments do not work and it fails then it is unlikely that your creditors will demand that you are made Bankrupt. Normally you will simply be left to deal with your debts once again on your own.

At this point you have the option of starting a debt management plan (DMP) or consider the possibility declaring yourself bankrupt. You should always take expert advice before you make this decision.

To have the best chance of your IVA working it is vital that you do not agree to make payments which you know you will not be able to afford. Always make sure your payments are based on an amount that you feel you will be able to sustain.

If the monthly payment amount required is too much for you then you may well be better off considering an alternative solution from the start.