If your IVA fails some if not all of your debt will remain outstanding. You will therefore need a clear plan for what to do next.
List of article contents:
- What happens to money already paid in?
- Will you be forced to go bankrupt?
- What should you do next?
- Can you choose to fail your IVA?
What happens to money paid into an IVA after it fails?
Generally speaking most if not all the money you pay into an IVA during the first year is taken in fees. This is almost certainly the case if your monthly payments are £150 or less.
There is nothing unusual or wrong with this. When the Arrangement was agreed the Insolvency Practitioner was entitled to take their Nominee Fee. Your creditors would have expected most of the first year payments to go towards this.
It only ever causes an issue if the Arrangement fails within the first year or two. When this happens most of your debt will remain unpaid. You are still liable for the total outstanding balance.
If you have been paying your IVA for a few years some of your debt will have been paid. However if it fails you are still liable for any that remains outstanding.
Will you be forced to go Bankrupt?
If your IVA fails it is very unlikely that your creditors will force you to go Bankrupt. Once you are bankrupt they lose control of the debt collection process.
They are then no longer allowed to collect the outstanding debt themselves. This has to be left to the Official Receiver. As a result it is unlikely they will receive any of the money they are owed.
Given this your creditors are likely to try and enforce payment in different ways. They may use a debt collecting agent. Alternatively they could take legal action such as applying for an Attachment of Earnings or a Charging Order.
Even if you are a home owner most creditors will avoid making you bankrupt. They know that a huge amount of any equity in your property will be taken in bankruptcy fees.
What can you do next?
After your IVA fails you cannot just ignore your debt. It is still outstanding. Although they are unlikely to make you bankrupt your creditors will start chasing you for it eventually.
If you are no longer able to afford to pay anything towards your debts a sensible option may be go bankrupt yourself. This could be a good idea if you are not a home owner or have a property with little or no equity.
If you can afford to make a payment towards your debts you could use a Debt Management Plan. However if your debt is relatively large it may take a very long time to repay using this solution.
You could also consider starting a new IVA. This can be achieved if you can still afford to make a reasonable monthly payment. However it would mean starting the Arrangement again from the beginning.
It will take some time for your creditors to restart their debt collection activities. You may not hear from them for 3-6 months after the failure of your IVA.
Can you choose to fail an IVA?
You may be unhappy with your IVA. Perhaps you rushed into it without properly considering the other options. Alternatively you may have been asked to increase your monthly payments to an unreasonable level.
Whatever the reason if you feel the Arrangement is no longer the right debt solution you can let it fail. To do this you just tell your IVA company to fail it and cancel your monthly payments.
You will be sent a letter confirming that your IVA has failed. Your creditors will be informed at the same time. You can then implement your alternative solution.
You normally have to be three months in arrears before your IVA can be failed. During this time you can save the money you would have been paying into it.