Your IVA seemed like the perfect solution when it began, but now it’s failing.
Will you be back to square one and have difficult creditors to deal with? Or could you even be made bankrupt?
First, there may be ways to rescue your IVA
An IVA failing may not be a disaster, for some people there are better options! That’s what the rest of this article looks at.
But don’t assume nothing can be done. Unless you want your IVA to fail, it is always best to talk to your IVA firm and ask what options there are.
When you just have a temporary problem, there can be ways to get through it and get you IVA back on track. Sometimes it may be possible to get the IVA completed without any more payments, so your debts are written off, not have it failed – this is more likely later in an IVA. Read Can’t afford your IVA payments? for more details.
If your IVA firm is saying you have broken some rules (the legal term they may use is “in breach of”) and you think this is wrong, unfair or you want to propose a solution, put in a complaint before your IVA is actually failed. Your local Citizens Advice may be able to help.
What happens when an IVA fails
When your IVA fails, your IVA firm will send you:
- a letter of termination and
- a failure report that lists your creditors, what you owed them at the start of the IVA and how much has been paid to them in your IVA. (If your IVA is failing in the first year, this may be little or even nothing as your first payments will have been taken to pay some of the IVA fees.)
Keep these! Even if you are fed up and want to forget about it, at some point you may decide to take action or you may be contacted by a creditor.
Your IVA firm will tell your creditors and the Insolvency Service that your IVA has failed. The Insolvency Service will mark your IVA on the Insolvency Register as having failed. After three months it will be deleted from the Register.
The IVA will remain on your credit record until six years from the date it started, so your credit score will not improve.
If you make any PPI claims, it is very likely that the refunds will be sent to your old IVA firm, not to you.
Will you be made bankrupt?
Most IVAs will have a clause that allows the IVA firm or one of your creditors to make you bankrupt if you break the IVA agreement.
It is rare for your IVA firm to do this as they will have to pay the fee to petition for your bankruptcy. Even if you have a house with a lot of equity, it is unusual. It may happen if you have had a large redundancy payout or an inheritance that you didn’t declare.
Most commercial creditors would not make you bankrupt unless you have a house with a lot of equity. This would have to be a lot more than your total debts as the costs of bankruptcy are very high (tens of thousands) and have to be paid first before creditors get anything. Sometimes HMRC will make someone bankrupt even if they won’t get any money from it.
Will you be hassled by creditors?
This rarely happens immediately but after a few months it may start.
These cases are all very individual – what happens depends on many things including why your IVA failed, whether you have a house with equity, how large a debt is, what sort of debt it is and who the creditor/debt collector is.
What you can do after your IVA has failed
You have five possible options when an IVA has failed:
- you can choose another form of insolvency – a Debt Relief Order or bankrupcty.
- you can do nothing and deal with any debts you are contacted about.
- you can set up payment arrangements (or a DMP) for all the debts in your IVA.
- you can try to settle some of the debts with full & final settlement offers if you have a lump sum of money.
- you can try to set up another IVA.
Looking at these in detail:
1. Choose bankruptcy or a DRO
This is top of the list because if you are renting it is very likely to be your best option.
A Debt Relief Order (DRO) or bankruptcy soon after the IVA failure resolve your debt problems finally. No hassle from creditors. No worry about old debts reappearing after a few years or court or bailiffs.
Some people should never have been sold an IVA in the first place – a DRO or bankruptcy would have been much better solutions instead of an IVA.
Forget everything your IVA firm said at the start about an IVA being better for you than a DRO or bankruptcy – they were wrong about the IVA and they may well have been wrong about DROs and bankruptcy!
2. Deal with debts as you are contacted about them
Here is what happened to one person:
My IVA failed half way through. After it ended one creditor got a CCJ and I arranged payments with another debt collector. I cleared both of those debts. My credit record was then clear after 6 years when the CCJ disappeared. I never heard from the smaller debts in my IVA.
The advantage of doing this is that some debts may never contact you.
Also if you are contacted by a debt collector about a loan, credit card or catalogue that you opened many years before, it is worth asking the debt collector to produce the CCA agreement – if they can’t, it is unenforceable in court and you do not need to pay it. See this National Debtline factsheet for details.
The huge disadvantage is that some creditors may leave it several years before contacting you. At that point your credit record may be back to looking good and you think it’s all gone away. The debts in your IVA cannot become statute barred until at least 6 years after your IVA has failed.
Going for this option may minimise what you repay but it is a stressful route not knowing when a creditor will contact you and it may also prolong the time until everything is finally sorted.
If you are contacted by some large debts after four or five years you may have to go bankrupt then. It would have been much better to have gritted your teeth and gone bankrupt straight away.
3. Set up payment arrangements for the IVA debts
The advantage of doing this is you are taking control of the situation and it should reduce or eliminate any hassle from creditors.
The disadvantage is that you have to repay all the debts in full. If this is easy for you, then it would probably have been better to try to resolve your IVA problems and complete that. If it’s hard, or you are only making token payments so the debts will never be gone, you should look seriously at your insolvency options first, before deciding to do this.
4. Make full & final settlement offers on some or all of the IVA debts
Most people who have had an IVA fail don’t have much cash lying around to make settlement offers.
But if a relative could help you with some money, this could be an option. Read this Guide to F&Fs. Also if some of the accounts were loans, credit cards or catalogues that are quite old and which have been sold to a debt collector, read Ask for a CCA before making settlement offers.
5. Set up another IVA
Once bitten, twice shy?
If you have assets to protect and you can afford reasonable monthly payments to your debts, it may be worth talking to another IVA firm to see if they think a second IVA could work. Expect to be asked a lot of questions about why your first IVA failed! If you don’t have assets to protect, look at a DRO or bankruptcy instead – they are simpler and they don’t go wrong.
If you want to try this, talk to one of the smaller IVA firms where you will get more individual consideration.
Best to decide what to to do, not delay
You may feel battered and bruised after your IVA has failed. The last thing you want is to do is talk to debt advisers or creditors. But it’s usually best to make your mind up what you will do, not just try to ignore the situation. Get some good debt advice as soon as possible and take back control.