There are various reasons why you might find yourself struggling to pay your Individual Voluntary Arrangement (IVA) after it has started.

Unforeseen circumstances such as a loss of income or changes in your living expenses can occur meaning you are unable to continue paying your monthly payments. Alternatively you might simply decide that the payments you have agreed are too much for you.

If this this happens and your Insolvency Practitioner (IP) is unable or unwilling to help you one of the options open to you is allowing the Arrangement to fail and going Bankrupt. This could mean that your debts are written off without you having to make any further monthly payments.

Have you tried to reduce your IVA payments?

If you are struggling to maintain your IVA payments the first thing you should do is speak to the company managing the Arrangement. It may be possible for you to take a payment holiday or for you to permanently reduce your payments to a more affordable level.

However your IP may not be able to help if the amount you are already paying each month is minimal or where your living expenses have increased for general reasons and they are unable to recognise this and as such they refuse to agree to reducing your payments.

If you meet this kind of resistance from your IP you should tell them that unless something can be done you will have to allow the Arrangement to fail and declare yourself Bankrupt. This might cause them to act. However if you feel you are getting nowhere this is then the time to consider allowing the Arrangement to fail and using the bankruptcy option.

Do you want help to go bankrupt? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

How can you allow your IVA to fail?

If you have decided that you want to get out of your IVA this is actually surprisingly simple to do. You just cancel the standing order you have set up to make the payments. You then need to contact your management company, explain that you can no longer keep up the monthly repayments and that you want them to fail the Arrangement.

Once they have done this they will send you a letter confirming this – often known as a certificate of failure.  If you do then go ahead and declare yourself bankrupt you will need to take this letter with you to the Court when you present your Bankruptcy application.

BMD Tip: Very often it will take your IVA company two to three months to formally fail the agreement and send you your certificate of failure. However during this time you will not be making any payments to your creditors so you can save all the money you can towards your bankruptcy fees.

What happens to the money I have already paid into my IVA?

If you have been paying into your IVA for less than 12 months then it is very important to understand that most if not all of what you have paid will be swallowed up by your IP’s fees. If you have been paying for a longer period of time then once these fees are taken into account anything else will be used to reduce your debt total.

BMD Tip: I you go Bankrupt you may be asked to make payments towards your debts if you can afford to do so based on your disposable income. However these payments will be based on new income and living expenses budgets and will only last 3 years.

If you have no disposable income then you will no longer have to pay anything towards your debts and any remaining debt will be written off.

What happens to my creditors when I stop paying my IVA?

It is important to be aware that once your IVA has failed you will no longer be legally protected from your creditors and they can start their collection actions against you once again.

However normally speaking this action will not start immediately. It will take two to three months (and sometimes even longer) for your IP to inform your creditors that the arrangement has failed. At that point they will decide what further action they are going to take.

Nevertheless you should not rely on the possibility of your creditors delaying any collection action for a number of months. Before you allow your IVA to fail you should have taken advice and understand exactly what steps you will take to apply for bankruptcy.

What happens if I am a home owner?

If you are a home owner the decision to allow your IVA to fail and then declare bankruptcy may be made more difficult. Your options will really depend on if there is any equity in your property.

If you are renting or have little or no equity in your property then if you go bankrupt it is highly likely that there will be no risk to your home and bankruptcy would certainly be a sensible option for you.

BMD Tip: If there is substantial equity in your property bankruptcy might be extremely risky as you could be forced to sell your home by the Official Receiver. Where you are a home owner with equity in your property you should never allow your IVA to fail and go bankrupt without first taking advice from one of our experts.