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’ll 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 £30,000) 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:-
(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.