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Can an IVA fail?

Posted 17 November 2016

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Learn how to guard against your IVA failing.

In the right circumstances, an Individual Voluntary Arrangement (IVA) can be the best way to tackle your unsecured, unmanageable debts. But before you commit to any debt solution, it’s important that you’re familiar with the details, so you understand the terms of what you’re agreeing to and give yourself the best chance of successfully completing it.

Today we’re looking at the reasons why an IVA can fail, and how to make sure it doesn’t.

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What’s an IVA?

An Individual Voluntary Arrangement (IVA) is a formal solution to deal with insolvency. The plan normally lasts for five to six years and during which time your payments towards your unsecured debts are reduced to an affordable amount, based on your income and expenditure.

After your IVA finishes, as long as you have kept to the rules, the rest of your unsecured debts included on the plan are written off completely.

Should I worry about my IVA failing?

It’s important not to let undue worry stop you from doing the best thing to solve your problem debt. If an advisor has recommended an IVA to you as the best way to deal with your debts, it will be for good reason.

There’s also some flexibility when it comes to IVAs which allows them to deal with certain changes in your circumstances. If your circumstances change, it doesn’t necessarily mean that your IVA is going to fail – your Insolvency Practitioner will look into your options and may be able to arrange lower payments. Learn more by reading our guide on what happens when you circumstances change on an IVA.

Before you agree to anything, your solution provider will explain all the key information to you, including your obligations under the terms of the IVA and what could cause it to fail. They will go through what needs to be paid into the IVA and the rules of the solution in detail, so you’re fully informed.

Your IVA provider will be with you every step of the way throughout the life of your IVA to make sure that everything is done correctly and the risk of your IVA failing is kept to an absolute minimum.

If you have any questions at all about how your IVA is going, be sure to get in touch with your provider and speak with them. If you’d like to learn more about IVAs, we have all the answers you need in our guide.

What can cause an IVA to fail?

When you enter into an IVA, you start a new payment agreement with your creditors. If you break that agreement, this can cause your IVA to fail.

If you can’t afford to put anything towards your debts each month anymore, or if the amount you can afford drops dramatically, and your creditors don’t accept the new payment, your IVA can fail.

Your IVA can also fail if you refuse to stick to the rules of the solution, or refuse to pay money in that is owed to the IVA.

The other reasons for failure are not cooperating, missing three months payments without providing any evidence as to why, your debts being significantly more than expected, or providing false or misleading information.

What happens if an IVA fails?

If your IVA fails, your solution provider will write to you and your creditors to make you aware of what has happened. They will send you a Failure Report and a Letter of Termination, which will contain details of your IVA, such as how much you’ve paid in and how much is still outstanding.

You’d become liable for the full outstanding amount that you owe to your creditors. You’d need to speak to debt experts and look into your options for dealing with your debts. One of the options you can look at in this situation is bankruptcy, and it’s possible that your creditors will try to make you bankrupt if your IVA fails.

How do I stop my IVA from failing?

There are things you can do to minimise the risk of your IVA failing. First of all, it’s very important that you stick to your budget through the life of your IVA, so you can afford the payments you’ve agreed to.

As we said before, it’s also important that you pay everything into the IVA that’s due. For example, if you receive a substantial redundancy pay-out you are allowed to keep the equivalent of six months net pay and anything else has to be paid into the IVA. If you find work within those six months, the rest of the money leftover must be paid into the IVA. Have a look at our previous blog for a full explanation of what happens if you’re made redundant while on an IVA.

You also need to pay any windfalls you get into the IVA, if they’re over £500. Windfalls are sums of money you weren’t expecting to receive and can come in the form of a lottery win, inheritance or a PPI reclaim.

When you start an IVA, and when you have your annual review, your advisor will make a note of your income and outgoings. If you earn more than 10% over your earnings stated on your income and expenditure in overtime, bonus or commission, half of the extra amount will need to be paid into the IVA. This is known as additional monies, and you can learn more about how this works with our previous blog.

When it comes to pay-rises, this will be looked at during your annual review. During the review you’ll get to confirm any changes in income or outgoings. Your IP will check whether the pay-rise means you’ll end up with more money in your pocket – known as an increase in disposable income (DI). If there is an increase in DI, then your IVA payments will go up by half this amount.

Some people need to attempt to remortgage their home six months before the end of their IVA. If your IP has said you need to attempt to remortgage and release the equity, this is something you must at least try to do, in order to avoid breaching the terms of the agreement.

Your solution provider will go through a full review of your solution and how it’s going every year. As well as this annual review, you are able to contact them at any point throughout the year and let them know if there’s going to be a problem with your payments or a change in your circumstances. Completing your reviews are an important part of making sure that everything’s ok with your IVA.

Keep in contact with your solution provider

In many cases, keeping in contact with your solution provider and following their advice will stop any issues from becoming severe enough to threaten the success of your IVA.

If you’re concerned about anything at all, you should give your provider a ring and have a chat. If you’re still looking into how IVAs work, you can contact our expert advisors using the options at the bottom of the page.

by Christine Walsh

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