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Your IVA is a legal agreement, not only do your creditors have to stick to the rules but you do too. Therefore, if you don’t meet your payments or other obligations listed in your IVA it could fail.
Although the idea of an IVA (Individual Voluntary Arrangement) failing is a scary one, figures published by the Insolvency Service demonstrate this situation is unlikely to occur. According to the organisation, no more than ten per cent of these agreements fail within the first year.
Most people find IVAs work out well and with up to 75% of debt written off in some cases, these agreements can be a good way to deal with your creditors. However, if you’ve signed up for an IVA, it’s really important to keep up with your payments and other contractual arrangements.
As an IVA is a legal agreement, your creditors have to commit to the terms. This also means you have your obligations to fulfil. Below are some of the situations which can cause an IVA breach.
In the first instance, breaking the terms of your IVA will lead to a breach notice. This formal letter advises you of how you’ve broken the terms of the agreement and what you can do to get back on track. There are several reasons breach notices are issued, including:
Fortunately, receiving an IVA breach notice shouldn’t be the end of the world. There are lots of ways you can deal with one of these so it’s important to get in touch with your supervisor at the earliest opportunity to discuss the breach and put forward your proposal to remedy the situation.
Ignoring your breach notification is definitely not the way forward. Even if your circumstances have changed and your earnings have decreased, your supervisor can ask the creditors to make a variation to the IVA and accept lower payments than originally agreed.
If you receive a breach notice it will detail any problems and provide information about how you can get back on track. Failing to successfully deal with the breach will mean your IVA Supervisor may need to set up a meeting of creditors. Ultimately, this could lead to them terminating the IVA.
Most people fall into breaching their IVA due to worsening circumstances, so getting in touch with your IVA supervisor at the very earliest opportunity is one way you can actually avoid breach notices. Any change to your situation may need to be mentioned. This is particularly the case if you cannot meet your contractual payments.
However, if your creditors refuse to accept lower payments, your IVA will probably fail.
If your IVA fails, you will still need to pay your debts. To recover the sums owed to them, your creditors may decide to pursue legal action against you.
It’s also possible that your appointed insolvency practitioner will petition for bankruptcy if funds are held in the IVA. Alternatively, your creditors could request this as well.
Finally, if an IVA fails, you will still need to pay the fees of your insolvency practitioner.
If you’re worried about your IVA failing, and have one of these agreements through us, then you’re doing the right thing by dropping us a line.
Whether you’ve received a breach notice, or your circumstances have changed, your Insolvency Practitioner can work with you to resolve the matter. After all, we’re the experts when it comes to this stuff and – rest assured – you’re not the first (or the last) person to find themselves in this situation.
Debt write off applies to unsecured debts and on completion of an IVA. A debt write off amount of between 20% and 80% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.
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Free money help and advice can be found at the MoneyAdviceService.org.uk