An IVA is binding on all the creditors for the debts included in the IVA – but what happens if a debt is accidentally forgotten at the time, or only later emerges? If this has happened to you, you are going to need to talk to your IVA firm about your situation because IVAs can be very “individual”, but this article looks at what commonly can be done.
First I’l
l look at the usual case where a debt emerges during the IVA, then the less common scenario of a debt appearing after a completion certificate has been issued.
How big is the debt?
Your IVA will have discretion to add additional creditors or higher creditor balances of up to 15% without asking for creditor approval. So if an extra creditor emerges but the new debt is less than 15% of the debts already in your IVA, then it can usually simply be included in the IVA.
If the debt is larger than this, it can’t be added unless the creditors already bound by the IVA agree, so a variation meeting will be called. A variation is usually just to include the new debt, but it is also possible for the term of the IVA to be extended.
You might wonder why the creditors would agree to take less money. But most variations are accepted – creditors know the alternative is usually having the IVA fail.
Does this include benefit overpayments?
Benefit overpayments are a common reason for a new debt emerging, as they were often not known about when the IVA was set up. The overpayment can be included in the same way as any other debt unless the creditor (the DWP, HMRC or the Local Authority, depending on the type of benefit) has decided that, or is investigating if, the overpayment resulted from fraud. Fraudulent debts cannot be included.
What are your options if a debt cannot be included?
If the new debt can’t be included, one possibility is to negotiate a repayment plan with the new creditor outside your IVA. However frequently you can’t afford to pay both the new creditor and make the IVA payments, so your IVA is likely to fail.
If your IVA fails, you often don’t have any good options:
- if you don’t have a house, then bankruptcy (or a Debt Relief Order if your debts are under £20,000) is the most likely solution.
- if you have a house and there is no equity (or someone such as a relative could buy your equity from the Official Receiver), then bankruptcy is worth looking into.
- if you have a house with equity, then you could consider the option of selling the house and offering full and final settlements to your creditors.
After the IVA has completed
It is very rare that a creditor that should have been included in the IVA emerges after an IVA has finished and a completion certificate has been issued. If this does happen, the Insolvency Act says:-
(2A) If—
(a) when the arrangement ceases to have effect any amount payable under the arrangement to a person bound by virtue of subsection (2)(b)(ii) has not been paid, and
(b) the arrangement did not come to an end prematurely,
the debtor shall at that time become liable to pay to that person the amount payable under the arrangement.
Basically the debtor is responsible for paying the creditor the amount they would have been awarded in the IVA. Your IVA firm will be able to tell you what this amount is.
Avoiding this sort of problem
When your IVA is being set up, it is important that you make every effort to list your debts. There are no advantages to leaving a debt out and later trying to have it included – it may cause your IVA to fail, in which case you still have all your original debts with the addition of the IVA fees.
If your paperwork is in a mess and you are not sure about some debts then you need to try to find as many as possible and discuss any areas of uncertainty with your IVA firm:
- check your credit records with all three credit reference agencies – Experian, Equifax and Call Credit – because not all lenders report to all three agencies.
- if you think some debts are statute-barred, tell the IVA firm you are talking to.
- if you are having any benefit problems at the moment, tell the IVA firm.
Do you have a plan to repay your IO mortgage?
IVAs – their advantages and what can go wrong
How equity release works in an IVA
Diana says
Hi I’ve been contacted by a debt company saying I owe them nearly £6000 I had an iva 8 years ago and this debt was put on it, they have told me I owe it because it is front loaded interest!!! Am I liable for this or should it have been all on the iva, I’ve had no contact about this until 3 weeks ago, I’m really confused and upset by this please can someone help me?
Sara (Debt Camel) says
Hi Diana, you need to talk to your IVA firm about this. It sounds as though the whole debt should have been in the IVA. I hope this will be pretty simple to resolve.
AB1015 says
Hi Sara,
I have had a smooth running IVA up until now. I am 2 months of my last year which should finish next March.
I took the iva out in 2012 and was paying £103 back then and money was tight. I had a house with a secured loan on it and there wasn’t enough equity to sell it and pay them off, so in the circumstances I was in, my only option was to hand the keys back to the mortgage lender and voluntarily be repossessed. A big decision but turned out not too bad. This then released a lot more disposable income and I found my payments to the iva were now £650 per month. But also at that time I had a creditors meeting to now put my secured loan which was now classed as unsecured into the iva which they agreed as long as I paid another year of payments. This is where I now need advice. I apparently signed a form back then to say I would continue to pay £650 in the last year as a modification to have this loan agreed to by my creditors. That was in 2014. So every year without hitches, I’ve completed my annual reviews which having moved and finances changing, I’ve been paying £440 last year and my annual review was settled at £455 starting last month. All fine until I get a letter saying I only partly paid them and now in arrears. I must pay the arrears. Checked my iva online which shows my payments set at the said £455 but I rang them and they said because I signed this form in 2014, it still stands that I should pay that amount on that form which is £650? How can they do this? I thought that was the whole point of reviews on what I can afford and they said it was £455. Now they are pulling this out the archives with no mention to me to inform me or even tell me at my last review. The first I knew of it was the arrears letter. I am so angry that they didn’t inform me or mention it in some way and I thought my last year would be based on what they’ve said I can afford now. They’ve now taken most of my permitted income away to reap this extra £200 from me. Have I got any rights to complain about this? Thank you in advance. Alison
Sara (Debt Camel) says
What a shame you didn’t go bankrupt at the start. It would all have been over by now.
Have you asked your firm if they can extend your IVA to allow you to repay the extra?
AB1015 says
Hi Sara,
Just logged back in. I’m paying the £650 now till it ends in March 2018. I suppose I didn’t want to go bankrupt as it felt an Iva was more acceptable for my personal circumstances at the time career wise etc. 8 more payments to go and I hope that is the end of it! I just feel like my confidence in my IVA company has nose dived now after the farce of my last review and I’m just waiting for them to pull something else out of their bag of tricks!
If I’ve already completed PPI claims at their request and that was completed in 2013, and they know I do not own a house so no equity release and the secured loan transformed into an insecure loan and modified my plan which led to this last year of payments (taking 5 year IVA to 6), is there anything else they could come up with to trip me up at the final hurdle? I’ve not had a payment holiday, paid in full every month and given all documents upon request at every review.
Thank you.
Alison
Sara (Debt Camel) says
Well lots of things can happen in an IVA – redundancy, inheritance etc – but you are close to the end so I hope the rest goes smoothly for you.